GNT Productions

Archive for July, 2011

After you have made the decision of selling your business, the next decision you have to make is whether or not you should use a business broker.

Most people these days are opting to sell their businesses privately to try and save on the commissions they will be charged when putting the sale of their business in the hands of a business broker. When selling your business privately, you should use the following methods to promote your business for sale. Firstly, you should submit your business for sale to an online business for sale website. Business for sale websites are relatively inexpensive and will generate quality leads. Secondly, you should place your advertisement in your local business classifieds paper.

The only downside of selling your business privately, is the fact that you are the point of contact for all enquiries. This means you should be available 24/7 to take calls. You also have to be able to tell the difference between the serious people and the people who are just ‘tire kickers’. Because you really want to be able to eliminate time wasters and focus your energy on the serious enquiries.

When you hire the services of a business broker, you can basically sit back and let the broker do all of the running around for you. Selling a business through a business broker can sometimes be a smoother process if you unfamiliar with the business selling process. A business broker has qualified buyers ready to go, and if there just happens to be a buyer looking for a business in your industry, then you are already half way there.

An experienced business broker can also give you a realistic price you should be asking for your business. They more than likely have sold businesses in your niche before and should know not only know what your business is worth, but they can also give you a realistic time frame on when they think your business will sell. You can tell the broker the minimum amount you will sell the business for and he will strive to achieve this.

In regards to the value of your business, always seek a second opinion with your Accountant or solicitor or lawyers. Business brokers can also offer potential buyers financial services. This is something you can not provide as a private seller, and it just may get the broker to close the deal.

You’ve had your eye on that cool franchise business for a while, and you’re finally ready to move forward and become a franchisee.  Congratulations on your decision to take control of your future!  You are showing your desire to be a leader, and someone who wants to be their own boss.  That takes confidence, courage, and discipline.  Before you buy, however, you need to ask some specific, key questions of the franchisor. 

Becoming a franchisee is similar to a marriage, in that your committing yourself to someone long term, and if it’s done correctly, both parties are successful.  For that to happen, though, you must know your partner really, really well first.  That means asking some direct, sometimes tough questions relative to the business.  Exactly what questions are important to ask, though?  A good franchise consultant can provide an entire list of questions you should not only get answers to, but be very comfortable with the answers you receive. 

Here is a sampling of some top questions that need asking:

1.  What type of support will the franchisor provide once your franchise has opened its doors?   One of the top reasons to buy a franchise is for the excellent support provided.  If you’re not satisfied with the answer to this, move on to another opportunity.

2.  What types of territorial restrictions and protections have been set up by the franchisor?  Key question.  You most definitely need to, and want to, know the exact size of the territory you are awarded and its boundaries.  This must be specifically defined before a franchise agreement can be reached.

3.  What arrangements are established through the franchisor in terms of product supply?  Most every franchisor will require you to purchase your products and/or services from an approved, specific vendor.  You may be able to “fill in” with, say, a local supplier in between orders if you run low on an item, but for the most part, you’ll be doing business with a vendor that has been pre-established by the franchisor.

4.  How many franchisees have failed and why did they fail?  Ideally, your franchisor will speak candidly about what exactly it takes to wildly succeed in their business model, and also what some franchisees have done (and what you should steer clear of) to completely screw it up.

5.  How much time am I required to devote in my business on a daily/weekly basis?  A few new, ill-prepared franchisees have been quoted as saying “I feel like I live here I’m here so much” and “ I had no idea I’d be putting in 75 hours a week”.  Almost always, there is one of two reasons for these statements.  One, and most likely, it’s a result of poor time management on the part of the franchisee.  Second, the question of time commitment was never asked of the franchisor.  Either way, its poor execution or implementation by the new business owner. 

These questions are for starters and the franchisors’ willingness to cooperate in answering them should help you judge their sincerity. There are numerous other questions I provide my clients with that need answering before an informed decision can be made.  Existing franchisees are often a more productive and responsive group to speak with, and I’ll discuss specific questions for them in another article.

Find Your Perfect Business

Often, people will confuse the profession of business brokerage with the sale of real estate.  Although there are similarities on the surface, there are in fact many differences.  Business brokers usually serve a much broader geography since, unlike real estate; a business broker needs to understand a company along its industry and valuation parameters.

Neighborhood location has much less to do with a business valuation than a neighborhood might have for a house in the suburbs.  This article will explore some of the reasons a business broker usually serves a much larger territory than the typical ‘real estate agent’.

Business Brokers Usually Work an Asset Class

As mentioned, a realtor may be familiar with the market for real property in a city or neighborhood and they may make much effort to familiarize themselves with local market issues which drive values.  A business broker may focus much less on geography per se, since their focus is dominated by the size of the business and industry.  As an example, an business intermediary who specializes in businesses valued less than $5 million may be familiar in the business resale market in a very large area such as a territory from Toronto to Kitchener, Hamilton and Niagara Falls, Ontario.  The point is that a business brokerage professional need not necessarily limit their practice to only one city when the reality is that they will probably serve their clients much better by having a regional focus.

There are Fewer Businesses than Houses

The other point to consider is that there are far fewer businesses listed for sale than there are homes.  As well, a business sells much less frequently than a piece of property might.  For this reason, a business broker would have a broader geographic focus in order to do a sufficient volume.

Multiple Company Locations

Sometimes a business broker will encounter a situation where a business for sale has multiple locations.  A competent business intermediary should be able to serve this type of client at a regional level.  For instance, an owner of a franchise food business with multiple locations looking to sell the business would prefer to deal with a professional with a broader geographic focus.  Another example would be an enterprise that has clients throughout the province of Ontario.  Such a venture would also benefit from a business brokerage professional that has a broader outlook.

Buyers Come from All Over

The other reality is that business buyers are not geographic-centric.  For example, a prospective buyer may be interested in a business for sale in Toronto but they may live in Oakville.  This person will not merely limit their search for business listings in Oakville, they will search throughout the entire GTA.  If they were buying a home, however, they very well might limit their search to primarily Oakville.  The point is that buyers of small businesses tend to broaden their horizons geographically when viewing business listings so a business broker who understands this will naturally broaden the marketplace they cover.