The financial institution you should work with will depend on the size and needs of your company, and these may change over time. To secure the best banking partner, you need to know how these organizations look at you from a risk standpoint so you can optimize your business’s appeal. But you must also research which institution can best serve your lending goals. In this episode of Napkin Numbers, Scott & Rahsaan go over all the basics of bankability that will help you confidently secure credit.
The Importance of Bankability
Napkin Numbers Talking Points
[1:06] 3 Types of Banking Institutions
- National
- Regional
- Credit Unions
[2:34] Why Bankability Matters
- What is bankability?
- How do banks look at you?
- How can you best meet your lending needs?
- 5 C’s of Credit that banks use for risk management
[3:23] 3 Components of Financial Ratio
- Leverage
- Liquidity
- Coverage
[4:15] Leverage
- How to calculate it using debt and equity
- The ideal ratio banks look for
[5:16] Liquidity
- What it means and how to calculate it
- Comparing your current assets and liabilities
- The ideal ratio banks look for
[6:11] Coverage
- Are you making enough money annually to pay off your debt?
- Calculating your EBITDA
- Considering capital expenditures
- Ideal Debt Service Coverage ratio
[8:55] How to make your business a good risk
- Have a strong balance sheet and income statement
- Articulate your business plan effectively
- Be transparent
- Have strong advisors
[9:50] Common misunderstandings
- Getting help with start-ups
- Running a lot versus a little bit of money through the bank
- Pressure to show a constant profit
- Communicate with your banker
[10:36] 4 questions to ask your banker
- Finding a banker who can help your business grow
Finding the right bank for your business isn’t just about impressing lenders. Getting your finances in order and presenting a trustworthy, dependable image is important. But you also need to consider the best financial institution for your unique needs.
If you want to see where your company stands, try our free business evaluation calculator.
Why You Should Address Your Company’s Weaknesses Head On
By spotting your company’s weaknesses you can take steps to remedy them and improve operations, however, this is only the beginning of the benefits derived from spotting these types of issues. You should be the world’s foremost expert on your company and the investment that it represents. Identifying and repairing any negative issues will pay dividends both today and potentially for the life of your company.
There are many areas of weakness that companies may experience. In this article, we’ll look at a few of the key areas that many share
Workforce Issues
An area of business weakness that is receiving a good deal of well-deserved attention in recent years are problems related to the workforce. Workforce headaches are varying between industries and sectors. It has been well documented that young people are not entering trades in the numbers needed to replace retiring workers. This is a fact that is causing significant headaches for many businesses. An aging workforce will impact some businesses more significantly than others. Understanding the labor situation as it pertains to your business is a critical move for any business owner.
Overreliance
Being overly reliant on any one supplier, customer, product line or even employee or group of employees, may have an impact on your business in a number of ways. Supply chain interruptions, disruption to income and cash flows, labor shortages and a diminishment in the perceived value of your business by future buyers are just a few of the issues you may encounter. Diversification isn’t just a smart way to handle one’s portfolio, but is also a smart way to address your business plan. If your business is overly reliant in any one area, it is a good idea to measure the risk vs. reward and seek out ways to diversify if necessary. Your business will be stronger and worth more in the end.
General Industry Decline
Nothing lasts forever. Once upon a time, the country’s landscape was littered with Blockbuster Videos, but today Blockbuster Video has joined the vast and great technological dinosaurs of the past.
There is no escaping the fact that industries change. Being on the tail end of that change without a transition plan to meet new and potentially more profitable opportunities is not a good place to be. One of your key jobs as a business owner is to identify issues and problems within your industry and adapt, ideally ahead of the competition. Part of this adaptation may ultimately include knowing when it is time to exit your business entirely.
Business brokers and M&A advisors specialize in helping business owners spot weaknesses and then strategize to make significant improvements. The world of business is changing and evolving faster than ever before. Engaging with experienced advisors who can help you navigate this flurry of ongoing change could spell the difference between success and failure; while greatly improving the value of your business, rewarding you handsomely in your retirement.
Copyright: Business Brokerage Press, Inc.
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Getting the Most out of a Partnership Agreement
As an entrepreneur and business owner, your partnership agreement stands as one of the most important business documents you will sign. Business structures can be as complicated as the people that create those businesses. Quite often, business owners create businesses with friends or loved ones and, as a result, will not have a proper partnership agreement in place.
It’s important to note that not having a partnership agreement in place is a mistake. There are too many unknowns and too many variables not to have this essential document. You need a legal framework to protect your business from the vast array of potential pitfalls that may have an impact.
The Key Elements of a Solid Partnership Agreement
At the top of the list of every partnership agreement is a clear outline and understanding of rights and responsibilities. All too often partnerships run into trouble as the rights and responsibilities of the parties aren’t clearly thought through and then outlined in a partnership agreement.
Mapping out rights and responsibilities will help eliminate problems in the future. A partnership agreement should be seen as a serious legal document. As such, it is prudent to work with an experienced lawyer in the area of partnership agreements.
What Every Partnership Agreement Should Address
At the top of the list, every partnership agreement should address how money is to be distributed and which partner(s) will receive a draw. The issue of who will contribute funds so that the business becomes operational should be very plainly spelled out in the partnership agreement. A failure to address this issue could end the business before it even gets off the ground.
Issues such as what percentage each partner will receive and who will be in charge are two additional key areas that should never be overlooked. In terms of issues that are frequently overlooked by those forming a partnership, it is common for those forming a partnership to overlook long-term issues such as what is to happen in the event of the death of a partner, what steps are to be taken to bring in a new partner, and how business decisions are made.
Without a solid partnership agreement in place, business owners may find themselves in the last place they want to be, namely, court. A lengthy court battle can weaken your business in a very wide range of ways including a hit to company morale as well as the loss of key customers and employees. A legal battle between business partners can destroy what would otherwise be a healthy and thriving business.
The time you invest in the creation of a business agreement is time and money well spent. In fact, it is safe to state that a business agreement might just turn out to be one of the greatest investments you ever make.
Copyright: Business Brokerage Press, Inc.
Jirapong Manustrong/BigStock.com
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The Tremendous Importance of Maintaining Confidentiality When Selling Any Business
When the time comes to sell a business, any business, confidentiality must be placed at the top of the list. One of the quickest ways to damage any business that is for sale is for confidentiality to be breached. Once confidentiality is breached it can be difficult, or even impossible, to contain or repair the damage. No business in any industry is exempt from this rule.
It is no accident that savvy and experienced entrepreneurs, business owners, attorneys, accountants and business brokers are dedicated to maintaining seller confidentiality. A single breach of confidentiality can potentially destroy a business or, at the very least, negatively impact its value. A breach of confidentiality, even if it doesn’t destroy a business, can tarnish its reputation and ultimately deflate its value.
When it becomes public that a business is for sale, there are many potential negative ramifications. Key employees, customers and suppliers may all think that it is time to begin looking elsewhere. The loss of even one key employee, customer or supplier could have significant ramifications for your business. Employees may worry about the stability of their position and begin looking for employment elsewhere. Worst of all, employees may take their knowledge and expertise to a competitor and, in the process, weaken your business.
Employees in management positions may leave and, in the process, create a massive hole in your organization that will be difficult to fill, especially in a timely manner. Key customers and suppliers, worried about disruptions, may take their business elsewhere. All of these variables can combine to negatively impact your bottom line and potentially decrease the value of your business overnight.
As if all of this wasn’t bad enough, there is the very real problem of the competition. If the competition discovers that your business is for sale, they may share this information with your key suppliers and customers. Your competitors may become very aggressive in their quest to steal your customers and take advantage of the situation.
A breach of confidentiality can severely hamper your ability to sell your business. Business brokers and M&A advisors are experts at maintaining confidentiality through all stages of the sales process. We do more than simply have prospective buyers sign confidentiality agreements. Experienced business brokerage professionals will vet potential buyers to ensure that they are not just window shopping or gathering information, but are instead, truly serious about buying your business.
Working on your behalf to ensure that a prospective buyer is a serious buyer is one of the best ways that we can protect confidentiality. The process of selling a business is a complex one, and at its foundation is taking steps to maintain confidentiality.
Copyright: Business Brokerage Press, Inc.
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3 Tips for Mapping out An Easy Retirement Transition
Business owners are usually too busy running their business to deal with the fact that retirement will arrive one day. Ultimately, every business owner walks away from their business. The sooner you start preparing for that day, the better off you’ll be.
Whether it is an established location, relationships with customers and suppliers, or an understanding of a given industry, an established business has much to offer. Prospective buyers also know the benefits of buying a business with a track record.
Simply stated, no one is a greater expert on your business than you. That means you are positioned to evaluate your business and help map out a plan so that there is a smooth transition from buyer to seller. Let’s take a look at some tips for getting the best price on your deal and making that transition a little easier.
1. Have a Second-in-Command
This first tip is one that shouldn’t be overlooked. Develop and have a competent, dependable, and proven second in command. Any prospective buyer evaluating your business will feel much more confident with the idea of taking over if they know there is a responsible and experienced professional waiting in the wings to support the transition and beyond.
Buying a new business can be an intimidating prospect, especially if the buyer has never owned a business before. Acquiring a business with a competent second in command in place will serve to ease a prospective buyer’s many apprehensions while boosting their confidence that their plan to buy and operate your business will be successful.
2. Streamline Operations
A second key tip for business owners looking for ways to ensure an easy transition is to streamline operations. A lot goes into operating a successful business and the more you can streamline that process, the more attractive your business will be to any prospective buyer. This could be everything from creating operations manuals to improving training for staff members.
3. Be Transparent Wherever and Whenever Possible
Everybody wants to be loved…but when it comes to business it’s best as a business owner for your employees, customers and vendors to be more in love with your business than you. Communicating with key employees, customers and vendors early on in the process can help ensure a smooth transition. Deciding how and when to have these communications can be tricky however, and seeking outside counsel may be your best course of action in this regard.
Any prospective buyer who is considering buying a business will feel much more comfortable after learning that key employees, customers and vendors will all be motivated and ready to work with the new owner. One of the top fears of any prospective buyer is that they will buy the business only to see critical team members quit, key customers take their business elsewhere, or have to deal with supply disruptions. No one expects you to work forever so, the earlier transparent communications can take place about “one day…”, the easier the ultimate reality of a transition will be.
Finally, any business owner considering selling their business should explore working with a business broker or M&A advisor. Business brokers understand what it takes to ease the diverse fears that buyers have when it comes to buying a business. A business broker or M&A advisor’s expertise and knowledge base can prove invaluable for helping business owners chart the best path forward and get their businesses sold.
Copyright: Business Brokerage Press, Inc.
The post 3 Tips for Mapping out An Easy Retirement Transition appeared first on Deal Studio – Automate, accelerate and elevate your deal making.
Flaws In Your Business and How It Can Impact Your Company When You’re Trying To Sell
When potential buyers look at your business, 4 main categories will entice them to make an offer or scare them away. When you know how to optimize these core elements of your business, you can set yourself up for success and boost your chances of a lucrative sale.
Listen in to learn how your products, workforce, industry, and customers can significantly influence your business’s appeal to interested buyers.
Napkin Numbers Talking Points
[0:55] #1 How flaws in your business can impact the selling process
- Products
- Workforce
- Industry
- Customers
[1:17] #2 Products
- Are your products diverse?
- What sets you apart from the crowd?
- If you have one product, are you properly highlighting it?
[2:21] #3 Workforce
- Is your team big enough to allow for scaling and consistency?
- Does labor limit you?
[2:51] #4 Industry
- Don’t forget about your competitors
- Take into account the unique risk factors of the industry you’re in
- Exit at a time when your industry is healthy
[3:48] #5 Customers
- How highly concentrated is your customer base?
- Do you have a few big clients or lots of smaller ones?
- What happens if your big clients leave when you exit?
By knowing exactly what potential buyers think when they consider purchasing your business, you take the power into your own hands. Use the tips in this episode as a cheat sheet to prepare for an easy and enjoyable exit. The bottom line: show buyers that they’ll be able to transition into taking over your business without a hitch.
Ready to take the next steps on your exciting journey to transitioning out of your company? Use our free business evaluation calculator.
