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Even a document labeled “letter of intent” (LOI) may be enforced by a court of law as a binding, enforceable agreement if the court determines that the parties intended the document in question to be a binding agreement at the time it is signed. Are You Kidding Me? No. And when a business owner is threatened with the potential loss of a company as a result of an adverse court ruling, they do not view the matter as a joke. First and foremost, business owners thinking about selling a business -- and prospective buyers interested in purchasing a business -- must understand that virtually any writing signed by a prospective seller and a prospective buyer can be characterized as a binding, enforceable contractual undertaking. And believe me, if someone thinks they have negotiated a good deal they do not want to lose, they can -- and likely will -- claim...

This is a complex issue, and several factors and variables must be taken into consideration to properly assess the impact a change in employment rates may have on the value of your business. Factors and considerations to keep in mind: High unemployment rates mean more people are unemployed and are potentially looking to buy a small business. This is a significant factor in the sale of small businesses. If you have a small business, a high unemployment rate means there are many more buyers in the marketplace who may be willing to buy a job (i.e., your business). The majority of people who buy small businesses are ex-corporate executives or people who are escaping the corporate world. The best time for them to consider buying a business is when they have a lot of time on their hands, have few career options because jobs are scarce, and do not have...

The most important thing to take into consideration when buying a business is whether the business is truly a good fit for you and whether it matches your skillset. When evaluating a business, it’s just as important to assess whether the business is a good fit for you as it is to evaluate the numbers. If you buy a highly profitable business with a lot of opportunity but you aren’t passionate about the business, it’s unlikely you will be wildly successful. The opposite is also true -- the more passionate you are about a business, the more likely you will be successful. I have seen buyers buy a profitable business and literally run it into the ground in less than a year. I have also seen buyers buy a business and double the profitability within the same period. Some people did not succeed because the business they purchased was not...

Let’s discuss the three general options you have: SBA Financing: We recommend getting your business pre-approved for an SBA loan if your business is worth less than $5 million. Yes, that means “your business” -- and not the buyer -- pre-approved for a loan. The most popular loan for purchasing a business is the 7(a) loan. This loan requires a 20% down payment. However, if you structure the sale properly, you can reduce this requirement to 10%. This requires that you take action. Once your business has been pre-approved, you may also have the buyer pre-approved as well. However, don’t reverse these steps. Net Worth: Alternatively, the buyer may be able to access the equity in their other assets, such as equity in their home or their retirement account. We recommend going back to the buyer and simply asking them if they can liquidate any assets and provide a larger...

In the complex world of buying and selling a business, coming to an agreement on the proper price for a business can be difficult. An earnout is one element that may be a factor, but it is a complex element. Earnouts are difficult to administer and are prone to litigation. You should give careful consideration to an earnout before you agree to one. What is an Earnout? An earnout is a useful tool in mergers & acquisitions and is commonly used by businesses in a variety of industries. An earnout is an arrangement where the buyer pays the seller additional money based on some metric, such as if the business performs well after the closing. Earnouts are a useful way to bridge a price gap between the perceived value of a business between the buyer and the seller. Price gaps are common in mergers & acquisitions. The seller, who may...

This is a complex issue, and several factors and variables must be taken into consideration to properly assess the impact a change in employment rates may have on the value of your business. Factors and considerations to keep in mind: High unemployment rates mean more people are unemployed and are potentially looking to buy a small business. This is a significant factor in the sale of small businesses. If you have a small business, a high unemployment rate means there are many more buyers in the marketplace who may be willing to buy a job (i.e., your business). The majority of people who buy small businesses are ex-corporate executives or people who are escaping the corporate world. The best time for them to consider buying a business is when they have a lot of time on their hands, have few career options because jobs are scarce, and do not have...

Let’s discuss the three general options you have: SBA Financing: We recommend getting your business pre-approved for an SBA loan if your business is worth less than $5 million. Yes, that means “your business” -- and not the buyer -- pre-approved for a loan. The most popular loan for purchasing a business is the 7(a) loan. This loan requires a 20% down payment. However, if you structure the sale properly, you can reduce this requirement to 10%. This requires that you take action. Once your business has been pre-approved, you may also have the buyer pre-approved as well. However, don’t reverse these steps. Net Worth: Alternatively, the buyer may be able to access the equity in their other assets, such as equity in their home or their retirement account. We recommend going back to the buyer and simply asking them if they can liquidate any assets and provide a larger...

Yes, this is absolutely true. Most acquisitions fail. Data is scarce on the success rate of acquisitions -- approximately 70% to 90% of acquisitions fail to meet expectations. Most acquisitions destroy value for the acquirer. But this is missing the point. The real question is not about the “success rate.” The question is about the alternatives. What are the alternatives to business acquisitions? How does growth by acquisition compare to these alternatives? The alternative to growth by acquisition is internal or organic growth. What is the failure rate of organic growth? For example, what percentage of Google's new products reach at least a breakeven point? Or for another example, what percentage of a pharmaceutical company’s products under R&D ultimately become successful? On a broad scale, these answers may be impossible to calculate, but it is likely in a similar success range to a business’s acquisitions. Obviously, this varies significantly based...

The most important thing to take into consideration when buying a business is whether the business is truly a good fit for you and whether it matches your skillset. When evaluating a business, it’s just as important to assess whether the business is a good fit for you as it is to evaluate the numbers. If you buy a highly profitable business with a lot of opportunity but you aren’t passionate about the business, it’s unlikely you will be wildly successful. The opposite is also true -- the more passionate you are about a business, the more likely you will be successful. I have seen buyers buy a profitable business and literally run it into the ground in less than a year. I have also seen buyers buy a business and double the profitability within the same period. Some people did not succeed because the business they purchased was not...

In the complex world of buying and selling a business, coming to an agreement on the proper price for a business can be difficult. An earnout is one element that may be a factor, but it is a complex element. Earnouts are difficult to administer and are prone to litigation. You should give careful consideration to an earnout before you agree to one. What is an Earnout? An earnout is a useful tool in mergers & acquisitions and is commonly used by businesses in a variety of industries. An earnout is an arrangement where the buyer pays the seller additional money based on some metric, such as if the business performs well after the closing. Earnouts are a useful way to bridge a price gap between the perceived value of a business between the buyer and the seller. Price gaps are common in mergers & acquisitions. The seller, who may...

Even a document labeled “letter of intent” (LOI) may be enforced by a court of law as a binding, enforceable agreement if the court determines that the parties intended the document in question to be a binding agreement at the time it is signed. Are You Kidding Me? No. And when a business owner is threatened with the potential loss of a company as a result of an adverse court ruling, they do not view the matter as a joke. First and foremost, business owners thinking about selling a business -- and prospective buyers interested in purchasing a business -- must understand that virtually any writing signed by a prospective seller and a prospective buyer can be characterized as a binding, enforceable contractual undertaking. And believe me, if someone thinks they have negotiated a good deal they do not want to lose, they can -- and likely will -- claim...

This is a complex issue, and several factors and variables must be taken into consideration to properly assess the impact a change in employment rates may have on the value of your business. Factors and considerations to keep in mind: High unemployment rates mean more people are unemployed and are potentially looking to buy a small business. This is a significant factor in the sale of small businesses. If you have a small business, a high unemployment rate means there are many more buyers in the marketplace who may be willing to buy a job (i.e., your business). The majority of people who buy small businesses are ex-corporate executives or people who are escaping the corporate world. The best time for them to consider buying a business is when they have a lot of time on their hands, have few career options because jobs are scarce, and do not have...

Ideally, the check should be paid to the LLC, since the entity was the legal seller of the business. On the other hand, if you dissolve the LLC, you would be the successor in the interest of the LLC's rights, including its right to the monthly payments (assuming you are the LLC's sole member). Typically, it would be prudent to maintain the LLC until the buyer has completed payment. In this case, the buyer could pay you directly. However, the advantage of maintaining the LLC is that it acts as an extra layer of protection in case some liability arises from the business, whether due to the buyer or third parties. Typically, it would be prudent to maintain the LLC until the buyer has completed payment. Granted, dissolving the LLC would simplify your tax filings and the like. However, your legal exposure to any blowback from the business would increase....

Let’s discuss the three general options you have: SBA Financing: We recommend getting your business pre-approved for an SBA loan if your business is worth less than $5 million. Yes, that means “your business” -- and not the buyer -- pre-approved for a loan. The most popular loan for purchasing a business is the 7(a) loan. This loan requires a 20% down payment. However, if you structure the sale properly, you can reduce this requirement to 10%. This requires that you take action. Once your business has been pre-approved, you may also have the buyer pre-approved as well. However, don’t reverse these steps. Net Worth: Alternatively, the buyer may be able to access the equity in their other assets, such as equity in their home or their retirement account. We recommend going back to the buyer and simply asking them if they can liquidate any assets and provide a larger...

The most important thing to take into consideration when buying a business is whether the business is truly a good fit for you and whether it matches your skillset. When evaluating a business, it’s just as important to assess whether the business is a good fit for you as it is to evaluate the numbers. If you buy a highly profitable business with a lot of opportunity but you aren’t passionate about the business, it’s unlikely you will be wildly successful. The opposite is also true -- the more passionate you are about a business, the more likely you will be successful. I have seen buyers buy a profitable business and literally run it into the ground in less than a year. I have also seen buyers buy a business and double the profitability within the same period. Some people did not succeed because the business they purchased was not...