If you’re feeling overwhelmed by the complexities of commercial real estate transactions, struggling to optimize your financial outcomes and need guidance on the best decisions, you are not alone!
Understanding the Modern Buyer
A key part of the American Dream is the notion of being financially independent and controlling one’s own fate. While times have changed, the idea of the American Dream is alive and well. Entrepreneurs have long realized that one of the quickest ways of achieving this dream is to own a successful business.
The majority of today’s buyers are well educated and come from the corporate world; however, they are typically not versed in the business buying process. Since these buyers are coming from the corporate world, they are fact-driven, meaning that they want to see the numbers and will pay attention to details both large and small. You can expect these buyers to want to see all necessary supporting documents. They will want to verify everything themselves. Additionally, you can expect them to employ many outside advisors. Summed up, today’s buyer is not an easy sale.
Another key fact about the modern buyer is that they are often what can best be termed as “event driven.” These are buyers that not only want to control their own destiny, but also need to buy a business for some other practical reason. For example, perhaps their current job was downsized or they were transferred to a location where they did not want to move. It is common that people don’t have the courage to quit their current job and say goodbye to the safety of a steady paycheck in favor of a leap into the unknown. It is quite common that there needs to be an event to stimulate the change.
Business brokers and M&A advisors seek to protect their clients while moving them closer to their goals. One of the ways that they can achieve that is by working with only serious and qualified buyers. The process of matching the right buyer to the seller involves asking a series of important questions such as the following:
- Why is the person considering buying a business?
- How long have they been looking?
- What kind of business are they seeking?
- How much money do they have available?
- Have they ever owned a business before?
Every business is different. It should come as no surprise that each buyer out there has a different story and different goals. A one-size-fits-all approach to buying and selling a business simply doesn’t provide optimal results. Working with a qualified business brokerage professional is the easiest way for a seller to not only find the right buyer, but do so with the least stress possible.
Copyright: Business Brokerage Press, Inc.
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Real Estate Mastery for Business Owners: Exclusive Buy/Sell Case Studies
In this episode of Napkin Numbers, Scott Lundt & Rahsaan Freeman review case studies they have seen through their work at Freeman Lundt, where business owners have bought or sold real estate in connection with their business.
You may have heard myths about commercial real estate transactions, such as you don’t need a commercial real estate broker and can use legal counsel to draw up an agreement for a transaction without any input from a broker. Scott and Rahsaan share the benefits and importance of having real estate brokers involved in commercial property deals for the best return on your investment.
You’ll hear insightful examples of buyers and sellers who made expensive mistakes by not having an agent’s expertise during negotiations. They explain how agents add value on both sides of a deal, from guiding due diligence and inspections to advising on tax implications and financing options. Working with an agent meant better loan terms and higher cash flow for buyers.
You won’t want to miss these first-hand accounts of how commercial real estate brokers maximize financial outcomes.
Napkin Numbers Talking Points
[1:11] Importance of Real Estate Professionals
- Scott highlights the value of hiring a commercial real estate broker to guide buyers through the real estate process, including market value, due diligence, financing, and potential tax savings.
[2:47] Emotional Attachment and Payment Risks
- The conversation delves into sellers’ emotional attachment to their buildings and the potential payment risks they face after selling.
- Scott also explains the implications of switching from owner-occupied to non-owner-occupied buildings.
[4:11] Role of Real Estate Agents
- The importance of real estate agents is emphasized, particularly in setting market rent rates.
- A real-life example is given where an attorney’s lease agreement lacked context for the rent amount, resulting in a significant discrepancy.
[5:31] Financing and SBA Options
- Rahsaan discusses financing options for buying real estate, highlighting the SBA’s 504 loans as a potential avenue for 100% financing.
- Listeners are encouraged to reach out for further discussion.
If you want to sell a business, please use our complimentary business evaluation calculator to discover what your business is worth.
The Top Four Reasons Why Deals Fall Apart
It takes a lot of work to buy or sell a business. When a once promising deal is not successful, this can be due to a wide array of reasons. However, understanding the reasons why a deal can fall apart in advance can serve to dramatically increase your odds of success.
Some of the reasons that deals fall apart are reasonable, while other reasons, to be blunt, are unreasonable. Let’s take a look at four common reasons that are seen in the world of business brokerage.
Reason 1- Financial Issues on the Buyer’s End
One of the most common reasons that deals fall apart is that buyers simply can’t find the needed financing. Working with a business broker or M&A advisor is a way to safeguard against this outcome, as an experienced brokerage professional knows how to pre-screen prospective buyers to increase the odds of success from a financial standpoint.
Reason 2 – Lack of Financials on the Seller’s End
A second reason that deals fall apart is that the seller doesn’t have all of their financials in an up-to-date form. Sellers must constantly strive to put themselves in the shoes of a prospective buyer. Virtually no serious buyer would move forward with a deal without having a clear picture of the finances of the business. This is an issue that can be circumvented with the right level of planning and preparation.
Reason 3 – Last Minute Surprises
A third common reason that deals fall apart occurs when a surprise happens at the last minute. It is almost impossible to safeguard against every possible surprise, however, an experienced business broker knows how to navigate the due diligence process so as to dramatically reduce the chances of unexpected problems. Again, brokerage professionals have tried and tested techniques which help reduce the chances of these unwanted surprises.
Reason 4 –Business Issues Left Unaddressed
Preparing a business to be sold isn’t something that happens overnight. Sellers should expect that any serious buyer will do more than “kick the tires,” but will instead have their experts go over every aspect of the business. Administrative, environmental, or legal issues that have not been properly addressed can serve to raise many red flags. Needless to say, this can scare prospective buyers away from a business. There is no replacement for proper preparation and meticulous due diligence months or preferably years in advance.
At the end of the day, there are many reasons that a deal can fall apart. Buyers and sellers simply can’t safeguard against them all. However, an experienced business broker or M&A advisor can often see problems on the horizon. Plus, when you work with an experienced professional, it can help keep emotions in check. It’s important to keep all parties involved focused on success. With the right team in place, it is possible to dramatically decrease the chances of surprise events ruining what would otherwise be a good deal.
Copyright: Business Brokerage Press, Inc.
The post The Top Four Reasons Why Deals Fall Apart appeared first on Deal Studio – Automate, accelerate and elevate your deal making.
6 Critically Important Aspects of Due Diligence
Performing due diligence as a part of your company’s annual review is a smart move and one that can help your business in a range of ways. Through this means, if the day comes that you need or want to sell, then you’re ready to go. There are six key areas of due diligence that you’ll want to consider. These are aspects that most serious buyers will consider when buying a business.
You can expect any savvy buyer to focus on the following during due diligence if they are truly interested in acquiring your business. Problems in any of these areas could spell serious trouble in the sales process.
- Legal
- Marketing
- Environmental
- Operational
- Management
- Employees
Legal Issues
In terms of legal issues, you’ll want to carefully evaluate whether or not your contracts and agreements are all current. Issues such as copyrights, trademarks and patents should all be examined. Most importantly, if there is any pending litigation it would be best to resolve the matter if possible. Likewise, if there are any potential legal issues, such as lawsuits, looming on the horizon, those issues should be addressed as well. Try and think about what your own lawyer or legal team would want to see out of a business before recommending that you ink a deal. Obviously, these types of legal issues should not and will not simply be overlooked.
Marketing Issues
Marketing issues should be dealt with as well. Business owners should understand not just their business, but the industry as a whole.
Consider the following questions:
- Who are the industry leaders?
- What is the size of the market?
- Who are your current and future customers?
- What are the upsides and risks of your products or services?
You should demonstrate to a prospective buyer that you understand the “lay of the land.” You should be able to convey a strong grasp of how the business is currently positioned and how it may be positioned in the future.
Environmental Issues
One serious environmental issue can derail a deal or even destroy a business. Prospective buyers are very wary of potential environmental issues. Identifying and addressing environmental issues, if possible, should be a key part of your preparation for due diligence.
Operational Issues
Another key area to evaluate is operational issues. Your company should have an easy to understand program for how products or services are handled at every point of the process. How your goods or services are delivered to the customer shouldn’t be a mystery, but should instead be clearly defined to a prospective buyer.
Financial Issues
As there is clarity in how your goods or services reach consumers, the same holds true for financial issues. You do not want your finances to seem mysterious. Everything from your inventory and supply chain to your accounts receivable and accounts payable should be well laid out, accessible and easy to understand.
Employees and Management
Problems with employees or management can spell doom for any company. You’ll want to take steps to cover any potential issues in these areas well before selling.
Working to address these six key areas will help keep your business in a ready to sell posture. While you might not plan on selling today or tomorrow, there is no way to know what the future may bring. It’s best to be prepared.
Copyright: Business Brokerage Press, Inc.
The post 6 Critically Important Aspects of Due Diligence appeared first on Deal Studio – Automate, accelerate and elevate your deal making.
7 Important Questions to Ask Yourself When Selling a Business
There is no denying the fact that for most people, the decision to buy or sell a business is one of the most important professional and financial decisions that they will ever make. Let’s turn our attention to some of the key questions you’ll need to ask.
1. What is really for sale?
You’ll need to determine what is, and is not, for sale. If you own machinery or real estate associated with the business, are those items to be included in the sale?
2. What assets bring in revenue?
One important factor to consider when preparing a business to be sold is what assets are earning money. If you have assets that are not earning money, then it may or may not be prudent to sell those assets.
3. What is proprietary?
Buyers and sellers alike will want to consider what is proprietary. Anything from software and patents to formulations can be extremely valuable. Sellers will want to give substantial thought to how to best frame any proprietary property that they have in the best light. Buyers will want to carefully evaluate proprietary property to try to ascertain an accurate value. Outside experts may be needed to make an accurate assessment.
4. What’s your competitive advantage?
A business’s competitive advantage should be of importance to buyers and sellers. A seller should focus on understanding their competitive advantage, whether it is a certain niche, a superior manufacturing process or product, better marketing or a range of other factors. Properly framing your competitive advantage can help buyers see the full, and even untapped, value of your business.
5. What is your growth potential?
Buyers will want to consider factors such as whether or not the business has the potential to grow. If the business can’t be grown, then buyers should include this fact in their final decision and/or offer.
6. What agreements do you have in place?
Other factors such as employee agreements, non-competes, and the depth of management are all areas of concern for a prospective buyer. Buyers will want to consider if the seller has secured agreements from key employees and how dependent the business is on an owner/manager.
7. What relevant financial information will a buyer want to know?
Understanding how much working capital is needed to run the business and how financial reporting is undertaken are other factors that should not be glossed over.
If you are preparing to sell your business it is worth the time to pause and think about what your business might look like to a buyer. In short, what would you think of your business if you were the buyer and what questions would you ask?
Buying or selling a business is complex. Every single business is different and that means there is no 100% standardized approach and route towards success. A seasoned, experienced and professional business broker or M&A advisor can help guide buyers and sellers alike towards optimal outcomes.
Copyright: Business Brokerage Press, Inc.
The post 7 Important Questions to Ask Yourself When Selling a Business appeared first on Deal Studio – Automate, accelerate and elevate your deal making.
Uncovering the Risks: Do Business Owners Need a Commercial Real Estate Broker?
In this episode of Napkin Numbers, Scott Lundt & Rahsaan Freeman are joined by Bob Fredrickson, the president of Coldwell Banker Commercial Danforth, to discuss the pivotal role of commercial real estate brokers in business property transactions.
Bob’s expertise shines as he discusses the vital factors that buyers need to consider, including property valuation, compliance, and market insights. He emphasizes the necessity of local market knowledge and the ability of commercial brokers to assess property value and potential risks accurately. On the seller side, Bob highlights the importance of balancing business and property value, stressing the need for realistic pricing and thorough property preparation.
For any business owner or investor in the real estate market – this episode is an essential listen to hear Bob’s valuable insights and practical advice to guide them through real estate transactions with confidence.
Napkin Numbers Talking Points
[2:28] Why Can’t I Just Use a Transaction Attorney
- The transaction attorney can write up the transaction, but they will not do a feasibility study.
- Commercial real estate brokers will look into the property to see if there are other tenants.
- The broker will analyze the leases for all of the tenants to tee up the building and prepare to sell it.
- Bob Fredrickson shares that his brokers put together an analysis of how a property will perform over the next 5 to 10 years, ensuring the buyer knows it is a good investment.
[5:52] Commercial Real Estate Broker Brings Value
- Bob Fredrickson says it is crucial to balance the business’s value versus the property’s value.
- A discussion must happen between the M&A side, commercial broker and the real estate owner and the business to determine that balance.
[7:00] Risks for Sellers
- Bob Fredrickson says it is crucial to balance the business’s value versus the property’s value.
- A discussion must happen between the M&A side, commercial broker and the real estate owner and the business to determine that balance.
[9:02] Including All the Experts
- Rahsaan mentions that a CPA is also a vital component of finding the balance in evaluating the business and the property.
- The CPA will provide guidance from a tax perspective on valuing the business or the property more.
[9:55] The Standoff Between Buyers and Sellers
- Meanwhile, he says, buyers are waiting for the bottom to drop out of the market.
- Neither party is getting their way – buyers are not getting bargain basement prices on real estate, nor are sellers getting top dollar for their property.
- Both sides need to be realistic with their numbers, so if everybody gives a little bit, then brokers know they did a good job because everyone is hurting a little bit.
- Rahsaan shares that the definition of a successful transaction is 90% happy on each side.
A sincere thank you to Bob Fredrickson for being our first guest on Napkin Numbers. For more about Bob and his team at Coldwell Banker Commercial Danforth, click the links below.
If you want to sell a business, please use our complimentary business evaluation calculator to discover what your business is worth.