Why Businesses Do Not Sell

It would be nice to live in a world where every business-for-sale was sold at top dollar. While there is no such thing as a perfect business free from all defects, there are a number of problems that can hinder a sale that could be remedied, if given enough time. This article lists ten of the reasons which are often cited as contributing factors in an unsuccessful sale or a completed deal for less than potential value.Business intermediaries need to be up-front with their seller clients, educating them on the challenges faced, and the likely impact that one or more of these issues will have on completing a successful transaction.1. UNREALISTIC EXPECTATIONSa. Valuation/Listing Price:Arguably, the price a business is listed at is one of the critical elements to a successful sale. An owner’s emotional attachment to their business, coupled with an inexperienced business intermediary’s desire to obtain the listing and please the seller, can be a recipe for disaster. Overpricing a business will deter knowledgeable buyers from establishing communications. Additionally, it will be extremely difficult to defend the valuation when a business has been priced unrealistically. The typical outcome is that the listing will languish in the marketplace and recovery becomes more difficult. Once on the market for months on end at the wrong price, the process in re-pricing and re-listing creates a whole new set of challenges, the least of which is maintaining credibility.b. Unrealistic Terms and/or StructureDeal structure, asset allocation and tax management must be addressed proactively and early in the process. Often the Buyer and Seller place all of the focus on the sale price at the expense of the ‘net after-tax results’ of a business transaction. In most cases, a seller could achieve a deal that provides a greater economic benefit when an experienced Tax Attorney/CPA assists with structuring the transaction. In addition to structure there are a number of other issues that could be problematic, including:

Seller insists on all cash at closing and is inflexible in negotiating other terms.

The buyer’s unwillingness to sign a personal guarantee

The lack of consensus on the Asset Allocation

Seller insisting on only selling stock (typically with a C-Corp)

Inability to negotiate equitable seller financing, an earn-out, or terms for the non-compete

2. PROFESSIONAL ADVISORSFor a successful sale to occur, a business owner must have the right team of advisors in place. An experienced mergers & acquisitions intermediary will play the most critical role – from the business valuation to negotiating the terms, conditions, and price of the sale as well as everything in between (confidential marketing, buyer qualification, etc). Aside from the M&A advisor, a business attorney who specializes in business transactions is critical. Once again, “who specializes in business transactions”. Any professional who has been in the industry for more than a year will be able to point to a transaction that has failed because the lawyer that was chosen did not have the specialized expertise in handling business transactions. Additionally, a competent CPA who is knowledgeable about structuring business transactions will be the third key role. While a business owner’s current legal and tax advisors may have the best of intentions in assisting their client with the business sale, if they are not experienced with mergers and acquisitions it would be highly recommended to evaluate alternatives. In some cases, there is one shot when an offer has been received and it is therefore imperative not to attempt to make a deal that is out of reach and impossible to complete.3. DECREASING REVENUES/PROFITSThe majority of buyers are seeking profitable businesses with year-over-year increasing revenue and profits. When a business has a less stellar track record with varied results or possibly declining revenue and/or profits, complications with the business sale are likely to occur. Not only will decreasing profits and revenue impact the availability of third party funding but it will have a material impact on the business valuation. While buyers traditionally purchase businesses based on anticipated future performance, they will value the business on its historical earnings with the major focus on the prior 12-36 months. For those businesses which have deteriorating financials, the seller should be able to articulate accurate reasons for the decline. Both the lender and the buyer will need to obtain a realistic understanding of the underperformance to assess the impact it is likely to have on future results. In cases where the seller is confident that the decline was an anomaly and is not likely to repeat itself, structuring a component of the purchase price in the form of an earn-out would probably be necessary. In other circumstances, when there are two or more years of declines, the buyer and lender will question “where is the bottom?” and what is the new normal. In this situation, a decrease in valuation will be inevitable. Cash flow is the driver behind business valuations and business acquisitions. The consistency and quality of revenue and income will be one of the key focal points when assessing an acquisition. It all relates to risk. Those businesses with dependable recurring revenue generated from contractual arrangements will generally be in greater demand than businesses who produce income based on a project based model.4. INACCURATE OR INCOMPLETE BOOKSOne of the most critical components to a successful business sale is for the business to maintain accurate, detailed, and clean financial statements that match the filed tax returns. Not only will these financial statements be the basis for the business valuation but they will also be the criteria for whether the business will qualify for bank transaction funding. Too often the business is managed as purely a lifestyle business that is focused only on short term owner compensation, without regard to building long term value. In these cases, the owner has taken very liberal personal expenses that may not be able to be added back when deriving the adjusted earnings. Given the importance these documents represent, a business owner should ensure that the books are professionally managed and up to date. Records that are messy, incomplete, out-of-date or containing too many personal expenses will only give prospective buyers and lenders reasons to question the accuracy of the books. Last but not least, businesses that have a ‘cash component’ will need to report 100% of this income for it to be incorporated in the valuation.5. CUSTOMER CONCENTRATIONBusinesses that have a handful of customers that produce a large percentage of the company’s revenues, will probably have customer concentration issues, especially if one client represents greater than 10% of sales. It is important for a business owner to recognize that a business which lacks a broad and diverse base of customers possesses a higher degree of risk for a buyer as the loss of any one of these large clients could have a material impact on the future earnings. As a result, customer concentration will have an effect on the valuation, deal structure, and salability of the business. Vendor and industry concentration can also pose complications when selling a business. Specialization can be a competitive advantage for a business and assist in winning contracts. However, this same narrow industry focus could be a detriment if it is perceived that the business does possess a broad supply chain and ample options to source products and materials.6. THE OWNER IS THE BUSINESSIt is not uncommon for the owner to play a significant role in the operation and management of the business. This is particularly true with smaller enterprises. Where this situation can present a problem is when the owner is not only the face of the business but also deeply involved with all facets of the company – sales, marketing, operations, management, marketing, and financial. If there are no key employees and there are few written processes and procedures, the business lacks a dependable and repeatable work flow. When it becomes evident that the business cannot operate effectively without the owner’s hands on involvement and personal know-how, it becomes problematic. Of equal concern is the relationship the owner may have with the customers of the business. If the customer does business with the firm largely in part of the relationship with the owner, this situation will create customer retention concerns and possible transition problems when the business is being sold. In summary, buyers want a business that can operate independently from the current business owner.7. THE OWNER(S) IS AGING AND HAS SLOWED-DOWNIt is not uncommon for a business owner to become complacent after running the company for an extended period of time. Becoming tired and lacking the previous ‘fire in the belly’ has a way of spilling over into the business fundamentals. The number of trade shows that the business participates in decreases, the travel and new customer sales calls that routinely took place on a daily basis in the early years, have been paired down. The investment spending on equipment upgrades, vehicle replacement or marketing programs have been cut back. Innovation has come to a grinding halt and the business is on auto pilot. The financials have luckily held steady but for how long? An owner who has become burnt out almost unavoidably transmits their lack of zeal and drive to their staff and clients in a number of subtle ways. The net result is the company’s performance slowly begins to deteriorate. Unfortunately, this situation can become even more pronounced when the owner finally makes the decision to sell the business and mentally checks out at the worst possible time. Transferring ownership can be viewed by some as a highly emotional process, and the decision to sell at the right time is often ignored until the issue is forced upon the owner (failing health, divorce, disability, etc.) and usually at a fraction of the former valuation.8. INDUSTRY IS DIMINISHING OR THREATENED Over the last two centuries there have been a number of industries that have developed and grown significantly. In this same time frame, many new industries have been created while others have become extinct. The future outlook for a given industry will have a direct impact on the valuation and marketability of the business during a sale. Businesses facing obsolescence or mired in a shrinking industry will face an uphill battle when it comes time to transitioning or selling the company. Maintaining a diverse offering of products and services that are relevant to the market, not just today, but also with an eye to the future, will enable a business owner to avoid this situation. Not only will this assist in mitigating the impact from declining sales but also demonstrate to a prospective buyer that the business has a clear path to grow in the future.9. CHOOSING THE WRONG LENDERFrom loan application approval to transaction funding is a process in business transactions that can take six weeks or more, that is with an ‘experienced’ business acquisition financier. Many deals have fallen apart during this time frame because the buyer became aligned with the wrong financial institution. There is nothing worse, for all parties involved, to find out four weeks into the process that either the loan terms previously promised were not correct or worse, that the bank underwriter declined the loan.In the field of business acquisitions, not all banks/lenders are the same. There are conventional loans, SBA backed loans, and there are lenders that provide cash-flow based financing and others that only provide asset based funding. One bank may turn down a borrower for an SBA 7a loan while another institution will readily accept it. Every lender has its own unique and frequently modified lending criteria. Therefore, buyers need to ensure they are working with the right lender from day one, or valuable time is wasted causing the deal to be compromised, or lost to another, better prepared candidate. Buyers should consult with the business intermediary representing the sale to determine which lenders have reviewed and/or pre-approved the transaction for funding. Obviously, buyers who are prequalified from the start and verify that the bank’s lending criteria conforms to the type of businesses they are evaluating, will be the best positioned for a successful acquisition.10. COMMERCIAL PROPERTY ISSUESFor some businesses the saying “location, location, location” cannot be more important to the value of the company. Typically, this will pertain to retail businesses. If the physical location is of major importance, the business buyer will seek assurances that they can either purchase the real estate or be able to sign a long term lease. On the flip side, the business could be located in a part of town that has fallen on hard times or could be located on the owner’s personal property, both situations necessitating that the business be relocated. Also, some businesses are not easily relocatable without affecting the current customer base. All of these circumstances add another layer of complexity to the transaction.Additionally, the type and size of facility can also have a material impact on the sale. If the facility is not large enough to provide the enterprise a sustained growth path, a buyer could become disinterested. Another situation could be the value of the property. If the current owner purchased the land/building a decade or two earlier and the financials or recast do not reflect a current FMV rent/lease payment, valuation problems will occur.Business transactions involving the sale of commercial real estate can be hampered by the Environmental Site Assessments (ESA’s) – Phase 1 and Phase 2. Property that is contaminated can be very costly to clean up and will have an impact on the closing. When this situation arises, it will be important for the buyer and seller to have a clear understanding of the costs to resolve the issue, which party is responsible, and whether a price offset will be warranted.Other complicating factors involving commercial real estate include zoning changes that require a property to be brought up to new codes, and clear definition of who bears responsibility and the cost of this process. Last but not least, the agreement by the landlord with either a lease assignment or offering a new lease at comparable rates.SUMMARYMost small business owners have spent the majority of their life building their business. It is not uncommon for a business seller to become so emotionally attached to the company that they look past some rather glaring problems that a business intermediary, a lender, or prospective buyer will immediately recognize. It is natural for a seller to want to obtain the highest price possible for their business. There is so much bad information on the web related to multiples and business valuations that this should not come as a surprise. M&A Advisors need to be honest and direct in educating a business seller on the challenges faced in a potential sale, the range for a realistic transaction price, as well as creative terms and structuring options that might be utilized. Being a people pleaser and ignoring any potential problems will only provide the seller with unrealistic expectations. In the arena of business negotiations there are few if any “pleasant surprises”. Dealing with issues up front rather than late in the sales cycle process should be the golden rule.

Custom ERP Software Development: Is It Worth It?

Most business organizations today are quickly adopting the use of custom ERP software solutions because as opposed to the common use of manual procedures and legacy applications, ERP programs are cost-effective and efficient. The Enterprise Resource Planning program is a system of integrated applications that are designed to automate different department/office operations (product planning, development, manufacturing, sales and marketing) to a single database.Nevertheless, not all ERP software will meet to every requirement of your organization. Therefore, when deciding on the ERP software to adopt, you need to choose the most reliable one as far as your business needs and processes are concerned. In turn, here are the two types of ERP systems:Off-the-shelfThese are systems easy to implement due to the fact that they are developed out of the experience of other organizations (user groups) other than yours. From the discussions on how each of those companies’ best use the system, you acquire information on how best to adopt the system for your business.Custom ERP softwareWith custom ERP, the system is developed based on your company’s experience. A programmer gets to design the ERP system in accordance what exactly you want the software to be able to do and ideally, the process it should follow in order to do perform and facilitate your operations.WY COMPANIES CHOOSE CUSTOM ERP SOFTWARE
There is a greater chance of a company meeting its user requirements when it goes for custom-built ERP software other than a generic system solution. This is so despite the high upfront costs and time consumption to get the system started. You can always start small and add the essential layers as you go by and in the end meet, the target software for your business. Plus, it is also a way to spreading the initial expenses throughout.Custom ERP software is also designed to fit your business processes instead of the business fitting into it, this is somehow relieving since as far as training of the company’s staff is concerned, there will be less of it. All they have to do is make little adjustments to coordinate with the system.A good example of such approach is Tesla, who carefully evaluated all pros, cons, and risks and decided to build custom ERP solution having above mentioned benefits in mind. Tesla CIO Jay Vijayan calculated the costs of SAP implementation in “millions of dollars” and a year to perform all the required integrations. Tesla managed to achieve same functionality within 4 month and much lower budget with custom built ERP. As the result, they’ve got independence from third-party vendor and Enterprise Resource Planning System that is tailor-made for their established internal business and manufacturing processes.HOW MUCH IT WOULD COST TO BUILD CUSTOM ERP SOFTWARE
It is obvious that the cost of custom ERP software development would depend on what you require, the number users and its complexity. For instance, if you are going for a sophisticated custom ERP system, you might not find complete designs that fulfill your needs. Therefore, you will have to incur extra cost for complimentary products to ensure the software fully functions.Nevertheless, the general cost of the ERP system will range between $25k to 75k. The extra incurring costs for future modules or top-up services and tools would go for $5k to 25k.RISKS OF DEVELOPING CUSTOM ERP SOFTWARE
The solutions and services that custom ERP software development is meant to provide, is usually not in box therefore, it requires a lot of time and finances to initialize the design resulting to high upfront fee.Since development of a custom ERP software is on basis of your requirements, to get a high-quality system that maneuvers around future changes easily despite it being a first-time project, you require a developer with experience. Such resources are hard to come by as you are outsourcing.In addition, your contact with the developer who initialed the system needs to be consistent. This is because they would understand the system better during the development cycle: design, testing, QA/ testing, and training. This may be hard to do especially if the developer is not reliable.Despite that, custom ERP software helps to save an enormous amount of money in long-term perspective. You may ask how is that possible. Each company counts on continued growth, including the number of employees, field force, and offices. In many cases, a bigger number of users means the continually growing expenses for the licensed ERP solution. Enterprise support packages are often sold as extra services and are way more expensive than support from the custom software development provider whose support is often included in the contract. Also, it is worth to mention that your organization will be the only one supported for the product which means better and faster communication.So, the expenses for the existing user licenses, new licenses, and support of the off-the-shelf solution is growing exponentially and completely overlap custom ERP software development costs in a couple of years. In its turn, custom ERP software will justify its high upfront costs, because your enterprise won’t be locked to the provider, will own the solution and all the data stored in the cloud as the result, and won’t pay for licenses when new user accounts will be needed.CUSTOM ERP SOLUTIONS EXAMPLES IN DIFFERENT INDUSTRIES
From the advantages of the existence of a software that can meet your business requirements and solutions, most companies have been seen heading to custom ERP system development for the management of their operations. Below are a few of such companies:Oil and Gas Companies
Oil and gas companies have a great plus with custom ERP software development but, it is usually a tragedy if the system does not support the operations efficiently. Therefore, when going for a tailored system for such a massive company more considerations are put in place other than the obvious; meeting the user needs.Custom ERP software for gas and oil companies should most importantly have applications to handling the environment safety. Energy companies are known to be hazardous to their environment and if not taken care of it would cause damage and to some extent shutting down of the organization. Therefore, the system should be able to provide data to the technicians as warnings in case of any threat so that they can mitigate the risks.Also, other than facilitating the operations of the company, a custom ERP software development should be able to open up opportunities for high profit returns investments for the business. That is, it should have a cost management application too.Finally, oil and gas fields are known to be really massive and some are usually in dense remote areas but since it’s business, every asset should be accounted for. In turn, a custom ERP software with good networking is essential to integrating and managing all the company’s operations regardless of the location. Such location difficulties are curbed with high-tech optimization tools to managing all labor and resources throughout.Manufacturing companies
With manufacturing firms, custom ERP system are saviors when it comes to saving costs, eliminating office paperwork, tracking business performance and improving customer experience. This is made possible by integrated custom applications platforms for management of its operations.Nevertheless, managing a national or to some extent international business operations can be a challenging task. A centralized custom ERP software can however, bring light to all your businesses processes as it enables management of creation of product, marketing and availing of the product across all the decentralized outlets. In addition, it integrates all that data thus incorporating workflow and control automatically.Education (schools)
Schools that are going for complete computerization of their functions and processes have custom ERP system development to opt for. A great number of schools have been seen heading to this direction with use of highly tailor-made programs to handle the school management and they are known to be very successful.Whether it is nursery/ kindergarten, high school or colleges, custom ERP systems have proven to provide efficient management of the institutions.WHAT ADVANTAGES WILL YOU GET IF DECIDE TO DEVELOP CUSTOM ERP
A custom ERP software is more of a prototype system whereby you can start designing the most basic and important features and function that you have in mind then later, during testing and maintenance, you can add other essentials bringing you to a very efficient software.

With a custom-tailored system, you are likely to achieve the solutions or attain the services you are going for from a software seamlessly.

The staff is usually at an advantage of comprehending how the system works easily because it was designed in accordance to the business practices and language. In turn they have little to adjust on their side.

Custom ERP systems are usually flexible in terms of future technological or even business changes. There is always a capacity for incorporating any developing trends.

Unlike the offshore system, you get to own the custom ERP system and its design is made specifically to meet your needs. Therefore, you need not to wait for feature requests and enhancements as you are in complete control of the system.
In summary, the basic things you need in hand while planning to adopt custom ERP system is you have to budget for high upfront fees. You will require a team of tech-experts from programmers, quality controllers, database engineers to designers and probably more. Then there is patience needed too, developing software that uniquely fits your business, just like Rome cannot be built in a day. It will require a lot of work which will consume time months or even year.In addition, you need to be fully aware of the company you have set your eyes on to work with because that would be a tragic decision as well as a blessing even before you start. The expertise, as well as a software development company’s stability, is very essential to check while assessing them. Have they done this before? Do they understand your business needs? Are the type of questions you should have answered before moving forward with them.

Eliminating Profit Robbing Telemarketing Calls to Your Business

Most of us small business owners don’t have the luxury of having a secretary or office manager to screen our calls for us. It can become overwhelming when answering sales call after sales call from telemarketers prevent us from doing what makes us money. To top it off, we can sometimes be talked into spending our hard earned money on products or services that are often overpriced and/or not needed in the first place.Each time we add a new business telephone number or change the business location of the ones we currently have, our telephone numbers are placed on a telemarketing list as a “new business.” Our business phone lines are then overrun by harassing telemarketers that want to be the first to sell a new business what they don’t need. You see a “new business owner” generally hasn’t fine tuned their decision making skills to the point that they can just say no and hang up. These skills come with time and experience. Telemarketers know this and target these new business owners because seasoned owners won’t fall for their tactics.I am always adding or changing toll free and regular phone numbers. To prevent this constant barrage of calls (I call it “the first wave”) or to at least limit them, I have developed a strategy that is working right now. You, as a small business owner, can take what you need from this and add to it your own ideas that you have found that work.First, the “Do Not Call” list! This list was set up for consumers and not businesses. We as consumers are afforded a lot more rights under the law than we are as business owners. Either way there is no mechanism the government can use to determine whether the number you put on the list is a business number or a residential number. I am not telling you to put your company’s number on the list. I am simply explaining that if you did, it would work. Any number that is put on this list almost instantly sees a drop in calls from telemarketers. You can find this list by doing a search for “do not call list” on your favorite search engine.Secondly you must accept the fact that if you need something for your business then you will seek it out and find it yourself! Train yourself to never buy “spur of the moment!” Spontaneous purchases can kill a business. Once you realize this then you will never change your phone service just because someone called and was nice to you. You’ll never buy twelve dozen light bulbs or two thousand feet of extension cord. If you need a first aid kit then go buy one at the Home Depot and don’t buy a dozen from a con man on the other end of the phone. First aid kits, extension cords, light bulbs and phone service are all the top sellers to the construction business, your industry may differ but I am sure not by much. You must say no and it is absolutely OK to be rude and to hang up mid sentence. The point is that once you have trained yourself to say “no,” then you can follow step three.Third, you must tell the caller that not only are you not interested but you want them to remove your company and phone number from their list. You must do this every time.
Watch out for “free” items, “we want to save you money” or “can I ask you why” because these are their favorite tricks to get you to spend. I try to be as polite as I can so that they will actually remove my phone number. Sometimes you may need to call an 800 number that they will give you in order to be removed from further solicitation. I recommend that you call and have your business’ phone number removed right away because these companies can actually sell your name to other companies as an “active” number and that will only make matters worse. The problem then spreads like a virus. The bottom line is to tell them no and to ask them to remove you from their list before you even hear what they have to offer.Another way that I minimize the distractions of telemarketing sales calls is to use caller ID. Unfortunately, only local companies that acquire work locally can utilize this method. My concrete cutting company services customers in Massachusetts, New Hampshire and Maine, so when I get a call from California or some odd area code, I will prepare myself to be firm and up front before I answer the phone. If my calls are forwarded to my cellular telephone and I find out the call wasn’t from a vendor or supplier then I will simply program the number as DNA into my cell phone. This stands for “Do Not Answer!” You can program up to ten numbers under one contact name in most cellular phones and give it a distinct ring tone. I have DNA1, DNA2 and so on and I am up to DNA9 right now. If I see or hear one of these numbers come in I just push the button that sends them directly to voice mail.Lastly and very important is the use of a device that is called the “TeleZapper.” The TeleZapper sends a digital tone through the phone line telling automatic dialers used my many telemarketers that the line is currently disconnected and or not in use. The automatic dialing computer subsequently removes your phone number from its list. This not only stops them from calling back it also prevents them from selling your phone number as an “active number.” This device became almost extinct once the “Do Not Call” list became a reality because who needs to “zap” a telemarketer if you are not getting any calls? It still works great for the small business and you will see a dramatic drop in telemarketing calls if you use it correctly. This device will not work if you forward your calls to another phone or if you use a voice mail provided by your phone company and your calls are sent to that voice mail box. It will work when a call is picked up by an answering machine in your office. The TeleZapper is very difficult to find anymore in retail stores but it is still readily available new on eBay or online.© 2007 Affordable Concrete Cutting Massachusetts, MA All Rights Reserved