Selling Your Business

March 12, 2019 by Comerica Bank

Start preparing the sale of your business as early as possible because the process takes a while. The best time to sell is when your business is doing well and you’ve got enough energy and enthusiasm for the final push.

Oftentimes, business owners only start to consider selling during a downward trend – either they’ve run out of steam, the business isn’t going well or an event in their personal life has made work difficult. This makes the process unnecessarily stressful.

When planning, consider if you need to sell by a given date or for a minimum price. Also decide whether you’d like to act as a consultant to the new owner, or work for the business. This could improve your asking price and speed of sale and will also impact the type of buyer you can attract.

Preparing for sale
While you’re working hard to keep the business going, some issues inevitably get put off for another day. Now’s the time to gather up those loose ends and get your business in the best possible shape.

Focus on reducing financial burdens on the new buyer, freeing them up to take their own direction. Bring all costs back to short-term spending as much as possible – investing in long-term projects at this point could make a buyer feel obligated to go in a direction they weren’t planning.

You can make your capital position more attractive by reducing stock and tightening credit control. Any superfluous assets can also be sold off. Be careful with this – you only want to trim the fat, not force the new owner to start from scratch.

Improve your internal processes, documenting them carefully. You want to offer the easiest transition possible and a finely tuned machine will be very attractive. If a buyer asks for information, provide it quickly and accurately to generate confidence in your internal systems.

Your buyer ultimately wants to make money, so make sure the financials of your business are great shape. Time your promotions and large purchases with sales peaks and troughs to show a more stable pattern of growth. Be realistic with your sales figures, however – massaging the figures may drive buyers away.

The buyer’s perspective
The best approach to preparing for sale is to always think from the buyer’s point of view – what would you want to see if you were buying a business? In general, buyers will only be interested in a business with good cash flow, solid systems and potential for growth.

You’ve already been through the process of making the best possible case for your business in your business plan. Update this document and use it as your selling tool.

A business with only a few customers is a high-risk proposition for a buyer. Demonstrate multiple sources of income from a healthy customer base. If you only have a few key customers or suppliers, reduce the worry by locking them into longer contracts.

A buyer wants to avoid inheriting problems – especially legal ones. Demonstrate compliance with current legislation and if there are outstanding legal issues, do your best to resolve them quickly. Be transparent about them too – you need to earn your buyer’s trust.

Bringing in the experts
Seek expert advice on accurate valuation, properly accounting for the goodwill you’ve generated. Asking too much puts people off, but asking too little sends a poor message about the health of your business. Research what other business are going for and what is selling well to determine the right price.

Hiring a broker can smooth negotiations and free up your time to continue running the business as normal while they look for buyers. Make sure to interview several brokers – don’t go for the first one you meet or be overly tempted by wild promises of a high selling price.

Brokers can also help to protect your business by keeping your identity confidential. When selling a business, you want as few people to know as possible as it can cause unnecessary concern among suppliers and customers. A business for sale can also be misconstrued as failing so only tell those who need to know, such as your staff and professional advisors.

Your broker and lawyer can also protect your trade secrets by drawing up a confidentiality agreement to use during negotiations with potential buyers. Remember to also protect your intellectual property.

Finding buyers
Selling to staff members can be convenient as they already know your processes. It also eliminates the problem of protecting your trade secrets. Be careful not to go too far down this road only for it to turn sour – you and your successor will still need a good team to work with.

Your competitors may be interested in buying your business to acquire your competitive advantages and improve their market share. Avoid divulging trade secrets without legal protection, because they could pull out of the sale with all the information needed to make a play for your niche in the market.

Consider looking abroad for buyers as well. Your business may offer a great opportunity for an overseas company to break into the US market. A broker with international experience can help with this.

There may also be a distributor, supplier, customer or manufacturer who would be interested in having a stake in more than one level of the chain, as a way of increasing profitability. This would also help them to preserve the existing chain and protect the interest of their current business.

Choosing the right buyer
Avoid selling quickly to the first person who comes along. It may not be the best offer you’ll get and if they don’t have the skills to keep your business afloat, you won’t see the money from your sale.

You can use your lawyer and accountant to pre-qualify candidates before it gets to negotiation stage, but some key questions to ask might include:

  • Do they seem serious?
  • Do they have financial capacity?
  • Does their track record show the right experience?

Closing the deal
Once you have found the right buyer, their offer will be subject to due diligence – going over the finer details of your business and ensuring there are no surprises.

Your buyer’s accountant will want to review all the finances; the lawyers will check issues such as ownership of assets and current contracts. You may be asked to sign warranties and indemnities so make sure your lawyer reviews these documents.

Members of your team may need to help with this final stage, but it should be a formality. If you’re confident your business is in good shape, you could well have found your buyer.

Next steps

  • Put a plan in place to get your business in the best shape possible.
  • Get expert advice.


This information is provided for general awareness purposes only and is not intended to be relied upon as legal or compliance advice for your business.
 

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Learn More About Women-Owned Small Business Programs

March 8, 2019 by Comerica Bank

Women face more than the gender pay gap when it comes to economic headwinds. There are also specific challenges that women entrepreneurs and women-owned small businesses undergo compared to their peers and the rest of the market, respectively.

Lack of access to financing and bias in contract awarding can negatively impact the success of these organizations. However, the federal government and many other advocacy groups have made boosting support for women-owned small businesses a priority. Tackling the particular pains and pressures of being a female entrepreneur can be as easy as learning more about the women-owned small business programs that are out there to help.

Certification as a women-owned business

There are many programs designed to specifically help women- or minority-owned ventures. For instance, some companies make a specific point to reflect diversity in their supply chains by increasing the footprint of women-owned businesses. However, before organizations can take advantage of such opportunities, they must fulfill one essential prerequisite: becoming certified as a women-owned small business. There are a couple of options for certifying bodies and business designations to brush up on, including:

  • The Women-Owned Small Business (WOSB) designation offered by the U.S. Small Business Administration (SBA).
  • Certification from the Women's Business Enterprise National Council™ (WBENC).
  • Certification from the National Women Business Owners Corporation™ (NWBOC).
  • Designation as an economically disadvantaged women-owned small business (EDWOSB) from the federal government.

Though what qualifies a business for certification differs slightly depending on the options, especially regarding economically disadvantaged status, general criteria include: 

  • U.S.-citizen women directly owning at least 51 percent of the business.
  • Women overseeing day-to-day operations and making long-term decisions.
  • A woman holding the highest possible rank of officer.

Applicant organizations should ready their cases with plenty of other documentation, as the process is known to take time. The reward, however, can be immeasurable, as certified businesses can take advantage of:

SBA WOSB Contracting Program

The SBA maintains a federal contracting program designed to steer contracts toward deserving, certified WOSBs. The contracts typically reserved for the program are from industries where women-owned businesses are underrepresented, and the SBA's leveling of the playing field helps position WOSBs to compete in the federal contracting arena more effectively. Some example industries include forestry, construction, civil engineering, industrial manufacturing and energy. Businesses can be certified directly by the SBA or through the WBENC.

WBENC or NWBOC benefits

When a business is certified by either the WBENC or NWBOC, that enterprise is now entered into the fold and able to access the full range of benefits each organization offers. For instance, small businesses can display the logo of their accrediting body in a storefront or on marketing materials. The WBENC and NWBOC also run conferences, seminars, training sessions, networking events and other opportunities, while engaging with corporate partners with whom their members then have established inroads.

Getting help as a women-owned small business doesn't end with certification. There are other avenues of support and opportunity offered by institutions committed to the success of these firms. Talking to Comerica Bank today can help connect women-owned small businesses with lending assistance and financial advice.

 

 

This information is provided for general awareness purposes only and is not intended to be relied upon as legal or compliance advice. 

This article is provided for informational purposes only. While the information contained within has been compiled from source[s] which are believed to be reliable and accurate, Comerica Bank does not guarantee its accuracy. Consequently, it should not be considered a comprehensive statement on any matter nor be relied upon as such.

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Planning an Exit Strategy

March 7, 2019 by Comerica Bank

Having an exit strategy in mind when you’re looking to attract investment can enhance the viability of your business. Investors want to know what kind of return on investment (ROI) they’ll get, how long their money will be tied up and what your long term intentions are.

Leaving a business you built is never easy, but it’s critical to begin planning an exit strategy during the early stages of your venture. You need to consider your employees’ futures and any commitments you have to financial partners.

Sell

Your most difficult decision when selling may be who you should sell to. Do you want the legacy of your business to continue through family, someone who shares your passion for business, a current member of your staff or the highest bidder?

The true value of your business is more than just bricks and mortar, its performance and potential are also important. How your ROI is determined will be vital to achieving a satisfactory sale.

If you want to take your business to market with an independently justified set of figures, hire more than one independent valuator to help vindicate your price position. You’ll know that you’re going to market with a fair dollar figure in mind if you set the price based on independent valuation.

Having a valuation on hand also helps if you plan on using a business broker. These individuals can often set the price too high - which discourages buyers - or too low for a quick sale.

Buyers may have conditions that can include an extended transfer period where they want to learn every part of the day-to-day running of your business.

Selling to family probably requires more due diligence. You need to ensure there won’t be any jealous family members and that you can maintain space between you and your former business.

Advantages of selling:

  • Pass it on to someone who’ll preserve the important qualities of your business.
  • Keep it in close quarters by selling to family, friends or employees.
  • Gain an understanding of the total worth of your business.

Disadvantages of selling:

  • Conflict may develop in selling to family.
  • The process could take some time.

Selling may be your best option if you:

  • Have confidence in the ROI value of your business.
  • Want someone you know to take over.
  • Don’t need a quick solution.
  • Want to receive your business’s true value.

Acquisition

An acquisition is when you find another business that wants to buy yours. It’s one of the most widespread exit strategies.

In an acquisition, the value of your business is really the perceived value of the acquirer, rather than that defined by market valuations. If you can make your business attractive to acquisition candidates without cutting off other options, you may find a buyer who’s prepared to pay more than the true worth of your business.

You’ll need accurate knowledge of the market while making sure your business looks like a strong strategic asset to find the right company to acquire your business.

A large company may view your business as one that fills a gap in their market. They may want to strengthen their own product position through acquisition.

Advantages of acquisition:

  • An acquirer may pay more than your business is worth if they perceive added value in it.
  • A bidding war is possible if you can attract a few interested buyers.

Disadvantages of acquisition:

  • By targeting a specific acquirer, you might become less attractive to other buyers.
  • Your business may not fit well post-acquisition, leading to the combined company self-destructing.

Your best option may be to sell by acquisition if you:

  • Have a significant market share.
  • Can identify a likely target acquirer.
  • Are willing to make your business more attractive to a strategic buyer.

Liquidation

When you have limited time to exit your business, the fastest solution is to close it down and sell its assets. Liquidating isn’t usually in the plans of most business owners, but it does happen. You’ll have cash in hand quicker than if you sold your business as a going concern.

There are some significant drawbacks for business owners who make an emotive decision rather than a planned action to end their business.

The majority of your business’s value is in its operations rather than its assets. Selling the parts of your business separately will return less than the venture as a whole.

For most business people, liquidation is the last resort because the true value of a business isn’t understood.

Advantages of liquidating:

  • You’ll exit quickly.
  • There’s no negotiating involved.
  • You won’t have to worry about transferring your business to someone else.

Disadvantages of liquidating:

  • You won’t receive a true ROI.
  • Your employees and loyal customers will be left out in the cold.
  • Any investors you have will feel short-changed.
  • You’ll be the last in line, after creditors and investors, to see any money from asset sales.

Liquidation may be your best option if you:

  • Don’t have much debt.
  • Own most of your business.
  • Have only a few staff members.

If you provide a vital service to your local community, the quick closure of your business won’t be well received.

Public Float

An Initial Public Offering (IPO) is the process of floating your business on the stock exchange. Plenty of investment and due diligence are required over a long planning period to have a successful IPO.

You may consider reinvesting in the lead up to your IPO to make your business highly competitive, so to impress stock analysts. You can also boost the perceived value of your business through marketing prior to the offer.

Businesses that offer public floats usually contract investment banks for underwriters. The initial share price can dictate demand, so your investment bank will find the best price.

Advantages of IPOs:

  • You can get the highest return through an IPO.
  • Your business should get some media exposure in the lead up to the public offering.

Disadvantages of IPOs:

  • Success stories are rare.
  • You’ll need meticulous accounting records from the creation of your business.
  • Underwriting, accounting, and legal costs are involved.

If you have considerable funds to prepare for an IPO, maintain extremely high accounting standards and potential to grow into a larger business, your best option may be a public float.

 

This information is provided for general awareness purposes only and is not intended to be relied upon as legal or compliance advice for your business.

This article is provided for informational purposes only. While the information contained within has been compiled from source[s] which are believed to be reliable and accurate, Comerica Bank does not guarantee its accuracy. Consequently, it should not be considered a comprehensive statement on any matter nor be relied upon as such.  

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What Is an SBA Loan?

February 26, 2019 by Comerica Bank

While multinational corporations and conglomerates seem to get the most news, it's small businesses who represent the real engine of growth in America. Routinely cited as the backbone of the economy, small businesses make up an overwhelming majority of the market and employ the largest share of U.S. workers. However, despite this importance to the overall economic landscape, small businesses can often feel underserved by financial institutions.

While lending to small firms has recovered in the years since cratering after the Great Recession, it has experienced stagnation and unevenness in institutional readiness to approve smaller borrowers, according to the U.S. Small Business Administration. These conditions might create problems for entrepreneurs with the next million-dollar idea, but not a million dollars in the bank to launch their venture.

Fortunately, the federal government understands the role of small business to the economy and operates an entire agency devoted to that segment. The U.S. Small Business Administration (SBA) is important for a number of reasons, but providing loans is among its most mission-critical functions. The SBA exists not only as a knowledge and advice resource for small business owners but also as a lending partner to small firms.

Whether you're looking for funds to start a small business, finance investment or expansion, or even recover from disaster, the SBA has a menu of loan offerings that can help small business owners. However, before they can take advantage of loans, entrepreneurs need to know exactly what an SBA loan is, how they can qualify and what else they should know about (like how the SBA doesn't actually disperse money itself).

What is an SBA loan?

The first thing small business owners or prospective entrepreneurs need to know about an SBA loan is that the loan does not actually come from the SBA itself. As explained by the agency, the "loan" is made possible by the SBA providing a guarantee to partner banks and lenders for the money they would then extend to small businesses. The guarantee mitigates risk for lenders by ensuring partial repayment should an owner default (in some cases, this can cover up to 85 percent of the loan amount). The SBA also reviews all applications to ensure loans fit within its established lending guidelines and standards.

This financing arrangement creates two general advantages to SBA loans:

  • With the government backing the loan, partner banks and lenders are more capable of offering flexible and attractive loan terms. Often, SBA loans come with lower down payments, more favorable rates or a longer repayment period. 
  • The federal guarantee also opens up the lending pool to small business owners or entrepreneurs who have been denied before, either because of credit history or risk associated with the loan, for example. However, the loan-backing process can encourage more lending to growing firms, unproven startups or businesses run by underserved or protected populations - including women, minorities and veterans.

The amount of an SBA loan can range from between $350,000 to $5 million, generally. Funds can be used for a number of purposes, including working capital and fixed assets.

How do I qualify for an SBA loan?

While an SBA loan is not technically a loan from the agency, the SBA is closely involved in vetting applicants and reviewing materials. In this way, SBA loans are very much like the rest of commercial and private lending in that qualifying standards generally revolve around creditworthiness, risk and business opportunity. In addition, the SBA also requires that businesses meet size definitions, be for-profit, be registered in the U.S., and that owners have equity invested in their venture and have exhausted all other means of available financing with no success.

Regarding the basic documentation you'll need, the SBA notes specific materials to prepare your application, which include: 

  • Personal information, including financial history and income tax returns.
  • Business statements, like cash flow projections and balance sheets.
  • Business valuation and debt schedule.
  • Applicable certifications, licensure or leases.
  • Past loan application history.

Entrepreneurs with no such established business information can still make an emphatic case for their loan worthiness. The SBA advises new businesses and startups to:

  • Describe their plan and business opportunity in detail.
  • Pin down exact capital needs, as well as forecast revenue projections.
  • List out collateral that can be offered.

Which SBA loan is right for you?

When asking "what is an SBA loan?", interested borrowers need to also ask "which SBA loan is best for me and my business?" This is a central question simply because there are many loan options made available by the SBA, some designed to meet specific or urgent needs. Finding the right SBA loan starts with brushing up on the various offerings and their specifics:

7(a) program

The SBA's primary program for lending, the 7(a) program acts as an umbrella for a number of diverse loans, in addition to traditional, mainstream offerings. The Standard 7(a) loan can reach $5 million and can be used for leasing or purchasing new equipment to replace old and inefficient units, or as working capital. Other loans in the program include:

  • SBA Express: Which ensures the SBA will respond within 36 hours of a request ($350,000 maximum).
  • Export Working Capital: Targeted funding for exporting businesses ($5 million maximum).
  • International Trade: Long-term financing designed for businesses growing overseas or facing stiff competition within domestic borders from foreign imports ($5 million maximum).
  • CAPLines: Short-term or seasonal loans made to help small businesses increase inventory, pay labor, finance renovations or tap revolving credit.

CDC/504 program

The CDC/504 loan program is made available to help small businesses finance large-scale investments, namely real estate. The end goal is growth, as physical expansion generates more jobs and business, and the 504 program connects qualified companies with long-term, fixed-rate funding through Certified Development Companies (CDC) to buy fixed assets or modernize operations. Possible uses for a 504 loan include purchasing an existing building, undertaking land improvements (landscaping, parking, utilities), building new structures or upgrading facilities, acquiring long-term machinery and refinancing debt linked to expansion. Particular advantages to this loan program that the SBA highlights include 90-percent financing, no balloon payments and savings used to improve cash flow.

Microloans

As the self-evident name indicates, this loan program is maintained to extend comparatively small-scale loans. The target audience for these loans includes small businesses in need of working capital or funds to repair furniture, as well as startups that need only a small amount to get off the ground. The maximum loan that can be made under this program is $50,000, while the average amount is $13,000.

Disaster loans

The costs of dealing with a natural disaster can run exceptionally high for small businesses, both in the near and long term, following a calamitous event. Companies that need financing to keep the door open, employees paid and the lights on can look to the SBA, which offers disaster loans of up to $2 million for small businesses, as well as for nonprofits and homeowners. Finding the right lending partner also factors into securing the best SBA loan for you. Given the SBA itself does not disburse funds, working with the most suited SBA partner to your needs is an essential part to taking advantage of such loans. Talk to Comerica Bank today about what SBA loan options are available to your growing small business or new startup.   

This information is provided for general awareness purposes only and is not intended to be relied upon as legal or compliance advice for your business.

This article is provided for informational purposes only. While the information contained within has been compiled from source[s] which are believed to be reliable and accurate, Comerica Bank does not guarantee its accuracy. Consequently, it should not be considered a comprehensive statement on any matter nor be relied upon as such.

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Building an Online Revenue Stream

February 20, 2019 by Comerica Bank

There’s money to be made online, and it’s important your new business doesn’t miss out.

The trick is to know what your customers want so you can focus your energy and budget on features and content that have a much higher chance of attracting your audience and increasing sales.

Targeted strategies

Many business sites are now offering online shopping features, but it may not be for everyone. The key is to measure the market first to make sure your time, money and effort bring maximum returns.

Survey your customers

Ask them about:

  • Their online habits (websites they frequent, how often they visit and what they buy).
  • The words they search when trying to find products like yours.
  • Their purchasing decision-making processes.
  • How easy it is to purchase from you.

This last question is important because having a website with online shopping features means you are effectively open for business 24/7, can streamline sales processes and retain customers by making it easier for them to shop with you.

Easy web development

Website-building platforms and services have sprung up to significantly reduce the costs of going online for small businesses.

If you’re considering hiring a web developer to build your website, first check out the solutions provided by platforms like Shopify®, which can give you a customizable e-commerce site based on popular designs, quickly and at low cost.

Even Wordpress® – the popular site-building tool for bloggers – can be used to develop your own website at minimal cost.

If you think a web developer is essential, confirm that a customized site is something your business needs and something customers will actually value before you spend any money.

Make a good impression

Great websites typically have certain things in common.

  • A Frequently Asked Questions (FAQ) section. Visitors often browse through the answers before deciding to make a purchase.
  • Customer testimonials. If possible, and with their permission, show names of customers to add more credibility.
  • Clear explanation of steps a customer needs to take to complete a purchase.
  • A privacy statement (many sites have one that you can adapt to identify your practices) and evidence of credit card data security to reassure customers.
  • Easy navigation. Buyers can intuitively see where they need to go to find what they need, and don’t need to search for your business’s contact details.

Enhance your site

Whatever the focus of your site, here are some essential tips.

  • Get staff and a select few customers to test the site and report on usability. Try shopping on other sites and imitate the features that make the whole experience as seamless as possible.
  • Refresh content regularly. Keep adding new information and resources. Quality content that drives traffic will improve your search engine ranking.
  • Consider improving your site’s search result rankings by using SEO (Search Engine Optimization) techniques. Talk to an expert for advice.
  • Measure the key metrics for your site to discover what needs to be changed to improve results. Get help from Google Analytics or similar services.

Explore other online opportunities

Once your business is up and running, you can:

  • Use the site to capture (with permission) customer details by inviting them to sign up for your e-newsletter, or access a premium section of the site with special resources.
  • Learn how to comply with the Privacy Act from the Marketing Association’s Best Practice Standards.
  • Consider affiliate schemes, selling through other websites and reciprocal links.
  • Start a blog to build interest in your business and position yourself as an expert.

Finally, treat a website as a work in progress. Create a budget for further development and updating the site to keep it fresh and worth visiting.

Next steps

  • Talk to your customers about the user-friendliness of your current website or what they would like to see on a new site.
  • Investigate options for building or upgrading your website. Talk to mentors and non-competing business owners who sell online and find out how satisfied they are with products or web design services they use.
  • Ensure you budget - in terms of funds and time - for researching and planning the website’s content, functionality, design and overall look.
  • Get inspiration from the websites of other businesses, but always keep in mind what is going to best suit your target market.
  • Get staff, advisors and a select group of customers to test and give feedback on your new website or new online shopping features before they go live.

 

This information is provided for general awareness purposes only and is not intended to be relied upon as legal or compliance advice for your business.

This article is provided for informational purposes only. While the information contained within has been compiled from source[s] which are believed to be reliable and accurate, Comerica Bank does not guarantee its accuracy. Consequently, it should not be considered a comprehensive statement on any matter nor be relied upon as such.  

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