Alternative Acquisition Funding

As the economy struggles to rebound, unemployment rates remain at historical highs and millions of Americans are still looking for work. As a result, many have considered following their entrepreneurial dreams of "creating" their own job rather than relying on corporate America to see them through. While hard times have kept demand for small businesses high and a wide selection of options are on the market, most business buyers are facing one major challenge: Accessing the capital required to purchase one.

It's rare that a buyer has enough cash to buy a business outright, so traditionally they've relied on a variety of sources to finance the purchase. Unfortunately, the primary source of capital for small business buyers--commercial and bank loans backed by the U.S. Small Business Administration's 7(a) loan program--has dried up significantly over this past year. According to numbers released for the SBA's 2009 fiscal year, the 7(a) program made 36 percent fewer loans than it did in 2008, backing only 44,221 loans from banks for starting, purchasing, or expanding a small business.

These numbers might seem to paint a grim picture for aspiring business buyers, but fortunately there are other ways to secure financing to buy a business. If you're in the market but face a lack of capital and no clear idea of where to start, consider the following financing options:

Peer-to-Peer Lending Networks
If you're unable to access bank capital to finance a small business purchase, one alternative is to turn to peer-to-peer lending networks. These networks remove the traditional lending institutions, instead allowing lending transactions to take place directly between individuals. If you want to use this route, you can do so via online companies such as Prosper.com and LendingClub.com. On these sites, loan seekers request a specific amount (typically up to $25,000) at a specific interest rate, and lenders fund all or portions of the loan. Lenders are then paid back with interest over a set period of time. Buyers' success when using these networks depends largely on their credit ratings.

Friends and Family
Borrowing money from the people you're closest to in life is probably the longest-standing method of funding entrepreneurial endeavors. Many people are hesitant to borrow money from friends and family for fear of straining personal relationships, but--if you make it a point to hold up your end of the deal under all circumstances and borrow only from individuals who are in a position to lend without risking their own financial health--it can serve as one of the most effective ways to fund a business.

If you feel this is an ideal method for your individual situation, you can use sites such as VirginMoney.com to manage the process of borrowing from people you know to ensure all parties involved are comfortable with the deal and confident that all loans will be paid back on time.

Retirement Funds
As with borrowing money from friends or family to buy a business, some might consider using money from a retirement nest-egg risky. That said, it can often be an effective way to invest in your entrepreneurial endeavors and has had successful outcomes for more and more of today's business buyers. As laid out by the government's ERISA law, you can invest your existing IRA or 401(k) funds to the purchase of a business without taking an early distribution and incurring penalties.

It's even possible to combine money from your retirement fund with loans and other funding methods for greater flexibility. Many entrepreneurs choose to invest in a business they control because they believe the growth opportunity is greater and want to diversify a portion of their retirement holdings outside of the stock market. If you find this is a viable option, sites such as GuidantFinancial.com can provide you with more information on this small business investing method.

Seller Financing
Increasingly today more business-for-sale transactions are resting on a seller's willingness to finance at least part of a sale. In a deal that includes seller financing, the seller takes part of the purchase price in cash and the remainder in the form of a promissory note that the buyer will pay back with interest over a period of three-to-five years. This has become essential; buyers are having difficulty accessing funds through traditional methods, therefore there's a natural gravitation toward seller-financed businesses to help offset some of the cost up front.

Conversely, sellers who continue to say no to seller financing are finding it difficult to close a deal, and as more of them have realized this, there has been an increase in seller-financed businesses on the market. To make it easier for buyers to locate these businesses, my company site, BizBuySell.com recently introduced the ability to filter search results based on a seller's willingness to offer financing.

If you're in the market for a small business it's important to be aware of alternate funding options, but know that in some cases it's still possible to borrow from a bank. Government stimulus and bank policy have been trying to promote ongoing small business lending, although many banks are still more conservative than they used to be about when and to whom they'll loan money.

Today's business-for-sale marketplace is full of exciting opportunities that will allow you to take your destiny into your own hands, and with various options available there's no reason to let a shortage of traditional capital sources get in the way of your dreams.

Factors to consider when preparing to sell your business.

If you want to sell your company, there are some “rules” that you should consider in order to have a successful transaction. Selling a business requires discipline, a sound strategy and strong advisors. While these ‘rules’ won’t guarantee that your business will be sold, they are certainly some key points to think about.

1. Prepare yourself personally for the sale
Think about the challenge that is involved in selling a company. The transaction is much different than a real estate deal and it does involve patience and perseverance. Are you truly ready for the work that is involved to sell your business?

2. Prepare your business for the sale
One of the biggest issues that befuddles business owners is that they do not properly plan a clear exit strategy from their business well in advance. Talk to your accountant and lawyer, get your financial documentation in order, claim all of your “cash” sales, renovate if necessary, and so on. Also, if you can implement some strategies to improve growth or profitability do so. It is better to show actual growth to buyers instead of simply talking about the theoretical “potential” of your business.

3. Don’t wait too long to sell a business
Selling your business while it is still growing or while it still has much upside left is advisable. Too often, business owners wait a few years too long, past the point that they “should have sold” and realize that the value for their business may have declined. Timing is everything – especially in a business sale.

4. Run your business properly
Don’t lose focus when you list your business for sale. Selling a business is a time-consuming process and it is possible to focus so much attention on the process and neglect the actual business that is being sold. Work with a business broker to sell your company so that you can focus on the operations.

5. Be reasonable about the selling price
It is one thing to get as much value as you can from your business when you decide to sell it – it is quite another to be unrealistic about the selling price. Talk to your advisors to get a sense of what a fair selling price is. .If you are unhappy with the recommendations of your advisors regarding your company’s value then implement steps to improve the business so that you can ask the selling price that you really want to. Simply setting a high price on your business and “waiting” for a buyer to come and purchase it is not a sound strategy.

6. Be flexible during negotiations
Selling a business means you will need to eventually enter into a negotiation with a buyer. Be flexible during the negotiation and try to compromise on the items that aren’t “deal breakers” to you. For instance, if the selling price is an issue then perhaps you can meet in the middle, or perhaps offer some additional vendor financing to make the deal more palatable to both parties. The point is, be prepared to budge on deal points that you are willing to bend on and offer creative ways to add value to your purchaser. Give and take is a good approach to take.

How to find the best buyer for your business.

It takes more than setting the right price to acquire the ideal match for buying your business.

You want a big payoff by selling your business. But you don’t want just any buyer for the business, you want the most qualified buyer. Easily, you could end up getting multiple offers from buyers that aren’t offering the most money. Matching the right buyer with the right business is a painstaking process and the transfer of business ownership is time consuming. However, the more prepared you are the more successful the outcome is likely to be.

Before seeking a buyer there are some important questions that sellers should ask themselves. First off, can your business be sold? Several elements of a business make it an attractive buy. It has a solid history of profitability, for instance; a competitive advantage; a large and loyal customer base or long-term contracts with clients; and, growth opportunities. Other considerations are brand loyalty, intellectual property rights, licenses, or issued patents.

For both seller and buyer the bottom line is what’s your business worth? This is evident in the valuation. You of course want maximum value for your business but setting an asking price too high could raise a red flag, scaring away potential buyers. But if you price it too low, you’ll lose out.

According to the International Business Brokers Association, a company’s value is determined by a compilation of factors such as sales, earnings, performance, market outlook, personnel, net book value, and the fair market replacement value of equivalent operating assets. Value is also influenced by intangible assets such as a company’s brand image, industry reputation, and good will.


To get a fair and reasonable price for your business, you need good negotiating power working on your behalf. Consider hiring an intermediary, which depending on the size of the deal could be a broker (usually $10 million or less), mergers and acquisitions professional (more than $15 million), or an investment banker (a large or public company). The intermediary’s job is to determine the appropriate value for your business and to find the perfect buyer to purchase it at the asking price.

Finding the right buyer is the key to a smooth transaction; it also will contribute to the continued success and growth of the business. Even if you work with an intermediary, it still behooves you to understand the process. Here are a few guidelines to help you navigate through the murky waters.

1. Who Are Your Potential Buyers?

Anyone could be a prospect. A buyer can come from your employees, customers, suppliers or competitors. People buy businesses for different reasons, and this will affect how you pitch your business to them. But generally buyers are divided into two groups: strategic and financial buyers. Strategic buyers will look at how well your business fits into their own company’s long range plans. Financial buyers are more interested in your company’s profitability and stability. They could be companies or individuals with money to invest. Some will want a solid, well-managed company that requires little oversight while others may specialize in turnaround situations and will look to buy a business that they can tweak to turn a profit.

2. Where Can You Reach Potential Buyers?

If your business is well known then word that it’s for sale may be enough. But more than likely you will need to cast a wider net. You could put out feelers to people you know or use such outlets as trade publications or newspaper advertising. There are websites such as BizBuySell.com and BizQuest.com. But a broker, M&A advisor or investment banker has access to deal flow and can sift out and approach potential buyers confidentially. You don’t want to risk loosing valuable clients, vendors or employees because of negative connotations that might come from putting your business on the block for sale.

3. Why Should You Qualify Potential Buyers?

Documents like confidentially agreements and financial background information are standard documents for prospective buyers. A broker or investment banker can pre-screen buyers to make sure they are financially qualified to purchase the business. This includes reviewing ownership, available funds to invest, sources of financing, and any judgments or bankruptcies filed. You also want someone who has the business knowledge, management experience and complementary skills to take the company to the next level.

Find out the primary reason for that individual’s or company’s interest in buying your business. If the buyer is another company, make sure there will be a synergistic fit. If it is a private equity group, look at their past experience in acquisitions

4. How to Look Good for Potential Buyers?

Selling a house is not the same as selling a business. But just as sellers stage a home to make it more appealing you need to get your business in good shape before you approach potential buyers. Your books should be in order for inquiring eyes to review. Have in hand before you go to market both current and three years’ of profit and loss statements, balance sheets, and full tax returns. In addition to listing assets and financial information, include projections for future earnings. Create a selling memorandum which starts with an executive summary that tells potential buyers the key elements of your business; provides a list of your products or services and an overview of the industry; and, explains why you are selling the business, which should have a positive spin on it. In addition, you want to get the physical business cleaned up and ready to show. It’s not just about the numbers; first impressions count. Make sure the business had good curb appeal. This includes disposing of unproductive assets or unsalable items (e.g., a broke down truck sitting in the warehouse).

5. What to Expect Out of The Deal?

There are some basic decisions you must make like will you offer seller financing; will you sell the entire business entity or just assets; will you keep any assets; will the buyer likely retain or replace staff; will you maintain a minority stake of the ownership; will you be expected to put in a year of transition time after the business is sold. Don’t make the mistake of waiting until after the deal is done to remove assets that are your personal property. Unless specified, “When a buyer walks in the facility, he wants to own everything he sees.

6. When Are You Ready to Close The Deal?

The average house will sell in four months. It may take nine months to a year to sell your business.
Once a buyer presents an offer of purchase, you may accept the offer, counter, or reject it entirely. The agreement becomes a binding purchase offer and sale once all parties agree to the terms and conditions; the buyer does due diligence inspecting all aspects of the business operation; and all contingencies are removed. Sound sales strategies will bring you the optimum price for your business, says Bruce.

Franchising Industry

I have seen many changes in the 28 years that I've worked in franchising.

The franchising industry has seen record growth in recent years. A recent economic analysis shows that the franchising sector of the economy expanded by over 18 percent from 2001 to 2005, adding more than 140,000 new businesses and 1.2 million new jobs to the nation’s economy. Direct economic output of franchises grew by more than 40 percent to $880 billion during the five-year span.

There are more than 900,000 franchised business in the U.S. operating in many industries, including automotive repair, restaurants, business services, retail, lodging, real estate and senior care.

The important element in finding success in franchising is the right match. We have witnessed buyers who put down $50,000 total investment and have built it to a business making over $250,000 profit. We've also seen a few others having to close their doors after 12 months. When you are looking at franchises, make sure it's an industry that is growing, that is not a fad, and one that will utilize your skills and abilities.