Mergers & Acquisitions

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Note: The information in this article applies only if the buyer of your business is likely to be an individual or small competitor. It does not apply if the likely buyer is a mid- to large-sized competitor, another company, or a financial buyer, such as a private equity group. These buyers often pay cash or put down up to 90% cash at [glossary-ignore]closing[/glossary-ignore]. Your business must get pre-qualified for financing because your business must produce enough cash flow to cover the monthly loan payments. Loans are pre-approved based on the cash flow available to support the debt service. The cash...

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We cannot make an adjustment that is larger than the original amount. For example, if your original P&L statement shows travel expenses of $50,000, we cannot make an adjustment of $80,000 because that is greater than the actual expense of $50,000 that shows on your P&L statement. Any adjustment we make must be tied to an actual expense on your P&L statement, and the adjustment cannot exceed the original amount on your P&L statement.

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You will not be held personally responsible for a corporation’s debts. A corporation is considered a separate legal entity from its shareholders. Hence, the debts of the corporation cannot be charged to the corporation’s individual shareholders. However, your investment in the corporation -- the cash or property that you transfer to the corporation as payment for the 49% share -- may be used to pay the debt. Before you invest in any corporation, it’s important to understand the specifics of the corporation’s debt and its overall financial and legal condition. The corporation’s board has the power to decide how or...

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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...

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Retaining a minority interest in a business involves a number of key decisions that must be made regarding how the business will operate after the closing. What follows here are a few factors you should consider before deciding to retain a minority position. What liability does a minority partner have? What happens if the entity the minority partner holds an interest in is sued? Assuming the business is in corporate form, the minority shareholder is liable only to the extent of their shareholding. However, as an exception, the minority shareholder could be made liable to whatever extent it could be...

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This arrangement is quite common in the middle market, with businesses priced at over $5 million. However, it is rare for Main Street businesses that are priced at less than $5 million. Although this idea could work, you must be on the lookout for several pitfalls: A 10% to 20% ownership stake is difficult to sell to anyone other than the current business owner. We recommend considering this option only if you have a buy-sell agreement in place that would force the current owner to buy you out if you ever wish. Without a buy-sell agreement, you will be left...

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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...

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When you are planning to sell your business, one thing you need to consider is the type of customer you have. Does your business have one-time, repeat, or recurring customers? You may be surprised to know that the type of customer you have can have a dramatic impact on the value of your business. One-Time Customers As the name implies, one-time customers are those who find your business, make a purchase, and are never heard from again. One-time customers have no loyalty to your business. Further, it takes a lot of money to acquire a customer, and getting one in...

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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...

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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...

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