Question: How do I start looking for that right business?
Answer: There are two ways. You can shoulder the assignment on your own, developing experience by looking at as many businesses as possible and, by trial and error, discover how to approach the subject of a no-cash transaction with sellers. I'd call this the learn-from-your-mistakes approach; we've all used it from time to time in other areas of our lives. You can start out with the guidance of people who've "been there"...people who'll stand by and support you through the process, helping you cut down the search time dramatically and enabling you to avoid the inevitable and sometimes costly mistakes of flying solo. That's why these program reports are established to assist you in areas where you feel help is most needed. They are intended to aid serious, dedicated entrepreneurs (like yourself) through the search and acquisition process so you don't have to go through it alone.
Profitable extra advantage: Once you learn the no-cash process, you'll have the additional power of being able to "flip" businesses regularly-quickly buying and then selling them for profit, potentially making hundreds of thousands of dollars a year.
Question: Where do I get leads on businesses that might be available for no cash?
Answer: I never rule out traditional sources among the areas to investigate. Your timing could be impeccable and you could find acquisition opportunities in the newspaper classifieds, like the Business section of Thursday's Wall Street Journal. Several other specialized publications have such business listings. The key is to scan for descriptions that indicate an owner's possible motivation to consider a no-cash offer. Do not worry about the quoted price or terms of the business. The sellers are trying to pre-qualify buyers by doing so. If you show that you are serious about buying their business, they will listen to you and your proposal. At that point, you can sell them on your strategy and close the deal efficiently. Make sure to keep in mind that you're dealing with someone who's been in business during the past decade; and your strategy should not be too aggressive. If you are subtle in your offer and make it very appealing to the seller, you'll have a win-win situation.
Question: Can I approach the business suppliers?
Answer: This can be an excellent idea. Suppliers always know who are the sellers in their industry. They will feel an obligation to give their best leads to valued customers, to built good will and assure a strong relationship with you.
Ask people in the trade which suppliers tend to sell to your target industry. Don't forget the follow up. This can be THE most important task to accomplish. Make it a point to call them once a month to remind them that you are still interested in becoming their customer.
Question: Should I approach business brokers? Or do they "jack up" the price of the business to accommodate their commission.
Answer: Rarely does the broker's commission affect how much you pay for the business. Plus, the participation of someone who's motivated to get the business sold is a plus for the negotiation. They will actually help you in getting the deal closed. They will participate in the negotiation and will help you get the best deals. Think of them as real estate broker who wants to sell homes in order to earn commissions. Their job is to unite the buyer and seller to conclude the deal. Keep in mind that it is estimated that more than half of all businesses are sold through brokers meaning that they must not be overlooked as sources for your new business. The important thing to remember in approaching a broker is to come off as a qualified buyer, not as an amateur.
Question: Can I simply seek out the seller directly? If so, how?
Answer: Actually, most buyers don't consider this strategy even though this is exactly the way business brokers get their best listings. The advantage is that you are able to get to good candidates before the business is "officially" up for sale and thus avoid the competition of other prospective buyers. You've heard the saying before: "EVERYTHING IS FOR SALE". This includes businesses as well. What you need to know is that all business owners are probably dreaming of an early retirement and want to travel around the world. Don't worry; your time will come to do so. Now by offering the seller a good price for his business (again, not using your own money) you should be able to get it on your own terms. Plus, by going directly to them, the seller will not need to pay extra fees during the transaction. The seller might want to avoid the lengthy procedure of prospecting the ideal candidate for the business. By placing an exclusive ad in the paper, the seller eliminates jokers by identifying serious buyers in the initial stage of negotiation. This is when your strategy can be used to your advantage because by eliminating the jokers, practically no competition will exist. At this point, you will be able to close the deal on your own terms. Voilà!
Question: How do I locate these businesses?
Answer: Mailing lists with specialized business brokers are available to you. You can get this information through our program reports. We'll supply you with quality business brokers so you can reach them and start your preliminary research. With this in hand, you can shop around and select the brokers, depending on the industry you're interested in. After all, extensive research is required to make sure that the broker will participate fully in finding the business best suited to your needs. Make sure not to reveal too many of your secrets in the preliminary stage of negotiation. Noticing your level of expertise in business, they'll be very impressed and will want to deal with you in the future.
Question: Is there any specific business terminology I should use during negotiation?
Answer: In our program reports, we teach the language of respect and credibility. That's the key.
You want to be taken seriously and, at the same time, you want to convey your respect for the seller's company. You should also make a statement of interest in a carefully constructed way. In addition, you will always provoke interest when you include and underscore the phrase: "I am a cash buyer." (not necessarily your cash). A response of from one to two percent of the businesses you contact by mail is excellent. You can follow up by phone if you don't hear from them. Remind them of the letter you sent and make the same general inquiry.
Question: If they say "yes" or "maybe", what's the next step?
Answer: Invite the owner to breakfast or lunch, and also ask for a tour of his or her facilities. You might call this the "sniffing and circling" phase. I will discuss later how to qualify and analyze a business and what documentation (financial mostly) to request from the owner.
Question: What other ways can I obtain quality leads?
Answer: Advertise your interest in buying. Many specialized magazines are offered for these purposes. The yellow pages and local newspapers can attract potential sellers. Look for categories, such as "Business for sale", "Business opportunities", and "Franchise for sale". These ads offer possibilities to buy available businesses throughout your city or state. Sellers place most ads under these different categories, a method that can be especially effective for potential buyers because there is very little competition in purchasing businesses through classified ads. You have to know precisely what kind of business you're looking for in order to carve a niche.
Always make yourself available to visit the seller and cut yourself an interesting deal. Now, you probably want to know where to place your ad. Selecting the right newspapers will list telephone numbers to contact these specific newspapers or magazines. For broader categories, the local Sunday classifieds will do just fine. Advertising in this way could also flag down sellers who cannot be reached by direct mail. And, as I've mentioned, when the prospective seller calls you, it means he or she is a solid lead. Because they're pursuing you at this stage, rather than you pursuing them, you have gained a psychological advantage.
Question: You mentioned previously: "in order to carve a niche". How can I carve myself a niche in the market place?
Answer: A niche is another way of referring to a "target market", discussed in the previous pages of this strategy. In today's hyper-competitive marketplace, long gone are the days of mere prospecting and crafty (and often misleading) sales tactics using 1,000 approaches to "close the deal." Due to the information revolution, consumers are now more informed, more educated, and incredibly more sophisticated than ever before. Using an over-abundance of techniques is no longer effective, or in the very least, they are not as effective as they used to be. Let's face it. People can no longer be "sold" let alone tricked. With information at their fingertips (such as with the Internet), they can find out almost anything in a matter of seconds. However and unfortunately, there are many companies still training their sales people to use these outdated approaches. Prospects not only see them coming but they also consider such techniques to be insulting. I do say "outdated" because, in our knowledge-based economy, more and more sales tactics are being frowned upon with each passing day.
Several methods can be used to carve yourself a niche.
1) The first rule in pre-qualifying prospects is to specialize. The most common mistake newcomers to any field of business make is to think that by expanding their portfolio they will secure more business. Nothing can be further from the truth. Specializing and narrowing one's focus as much as possible will paradoxically increase the likelihood of getting more business.
2) Specialization is in itself a fundamental marketing process. It's amazingly effective in creating "top-of-mind" awareness among a specific target market. For instance, an accountant specializing in car dealerships will get more business than a general accountant will. An advertising consultant specializing in print media for home furnishing stores will get more business than a typical advertising agent will. A photographer specializing in weddings will get more business than a regular photographer will. And the list goes on and on.
Over the years, specialization has been referred to as "niche" marketing. As more and more businesses get started, the less time, energy, and money people will have to spend in making choices of those with whom they choose to do business. Specialization helps to solve that problem.
Question: I understand the concept of carving a niche. However, how can I now attract consumers to my newly acquired business?
Answer: Consumers will choose when they have a choice presented to them to go to a business that specializes in a unique area in which they have a need. Think of it as a laser, which is basically a beam of highly concentrated light. You want to focus like a laser on your niche and, when you do, you will plant your business and your product into your prospects' minds.
Specialization casts an aura of superiority and exclusivity. When you deal with a specialist, you will automatically assume that this person has greater expertise, has greater knowledge about the field, and offers greater service since, by catering to a unique market, it implies that he or she will have a better understanding of your situation, needs, and concerns.
Additionally, niche marketers generate far more serious prospects than general, curious ones. Specialization is the wave of the future. And the greater the competition will become, the greater the need for more specialists. For example, why do you think there is a trend in specialty stores these days? They are popping up everywhere! Today, there are stores selling only dry foods in bulk. There are vitamin and food supplement stores. There are electronics stores. There are toy stores. There are even mothers-to-be and baby clothing stores! The need to specialize is obvious. With the media bombarding you with information and with your very limited time to be able to shop around for the best product from the best company at the best price, you will more than likely go the store that pops into your mind and do so only when the need presents itself. For instance, you can buy a toaster from a department store, a home furnishings store, a kitchenware store, an appliance store, a grocery store, and a drugstore -- even a bank! Heck, if there were a toaster store, you'd probably go there first. So ideally, your job is to find your niche and to narrow it down as much as possible.
Question: With the fierce market competition, how can I be the leader and be nationally recognized by the consumers?
Answer: You want to be the leader in your category or in your unique area of expertise. By doing so, free publicity will flow to you quite easily. Non-traditional mediums will seek you out. Specialized publications, strategic marketing alliances, and community television stations are wonderful mediums through which you can get the word out effectively at little or no cost. For instance, speaking of the entrepreneur who ran his own healthy food vending machine company. He also had a tremendous knowledge in the personal training field. He had a spot in the local radio show that enabled him to promote his business to the wide public. Since it was something different and new to any other radio show, he had his spot for free-- yes, free! He also took calls on the show, had his phone number broadcast during the show, and had an question-and-answer format where people listening to the show had the ability to ask questions to which he (or his guests) would answer directly on the air. The show was not meant to advertise him directly but meant as a public service gesture.
Publicity is remarkably different than advertising. It is far more credible and believable. And there are many ways to get publicity for you business, let alone free publicity. In a hyper-competitive marketplace, specializing causes people, other mediums, as well as other companies (looking to refer clients or to form strategic marketing alliances) to seek you out. Your goal is to become known as an expert in your field. If you have narrowed your focus to a very specific, highly specialized field, publicity will come easily to you. The media (and particularly those that are specialized as well) love to hear from people who are uniquely qualified.
Question: All this information is great and helpful. However, to locate the right business, what should my classified ad say?
Answer: That's the easiest part of all. All it needs to say to get your phone ringing is this: "I'd like to buy a business in the (fill in the category) field. Immediate cash available (again, not necessarily your cash).
Question: Are there any "back door" ways to find good businesses for sale?
Answer: Actually, those individuals who come through the back door are your potential suppliers, who always seem to know who in their industry is eager to sell. How can they be convinced to help? You can tell them you would like it to be a mutual back-scratching situation, meaning that they give you the names of clients they believe would be willing to sell and you, in return, would become a loyal and perhaps more active customer of theirs.
Question: How do I find the suppliers?
Answer: Simply ask people in the business. For example, if you wanted to buy a bookstore, ask the manager of your bookstore for the name of their local wholesaler. Then call and ask to speak to the salesperson for the particular geographic area in which you are interested. Suppliers frequently have close relationships with their long-time customers and can be a very good resource in finding the right business opportunity. They will save you time and money in your search for potential sellers in your desired industry.
Question: What about making an offer to the company you work for? How often does that happen, and how would I broach the subject?
Answer: Actually, nearly 20% of all business buyers eventually buy the company they've slaved for as employees. This strategy became very popular in the 20th century, and is also called a M.B.O (Management Buy Out). In most cases, employees would want to approach their employer and propose to them their strong desire to takeover. It is important not to go bluntly about it. Use your charm, your negotiation techniques and you'll be set. In this scenario, your new business may literally be right under your nose. However, keep in mind that the criteria in selecting a business should not only be for the following reasons: Convenience, ease of search in a particular industry, and knowledge of the business. Rather, you should consider whether you like the business, the people you work with and the possibility for growth. Good standing with an employer you have worked with for years will be a great advantage to you by opening opportunities for possible future internal acquisition. Your employer will trust you in handing over the business to you before contacting an outside buyer. This happens more often than you think and the result can be a no-cash bonanza if you handle it right.
In many situations, the business is family owned and therefore can represent sentimental value to the owner. This should be treated delicately because the business is not yours until the papers are signed and transferred.
Question: What is Management buyout all about?
Answer: Management Buyouts (MBO) have been successful at thousands of small and large companies over the past 20 years. Such transactions represent a sizable percentage of all corporate transactions that have occurred during that time. Increasingly, managers have come to expect participation in the ownership of the companies in which they work. Often, managers become owners in the context of a corporate transaction. These transactions compete with the more common strategic acquisitions by corporations that are implementing either vertical or horizontal integration strategies. MBO's have a number of advantages over strategic acquisitions.
Question: How does it work?
Answer: During the 1980s, it became more common for members of management, assisted by an investment group, to purchase their company, subsidiary, division or product line. These transactions are commonly known as leveraged buyouts, or LBO's, because the buyout group finances the transaction with funds borrowed against the assets and projected cash flows of the entity being acquired. These transactions usually rely heavily on senior debt and subordinated debt.
However, LBO's received negative press for their use in hostile takeovers. As a result, leverage buyout firms began to refer to themselves as private equity firms and to leveraged buyouts as management buyouts.
Question: What are the advantages of an M.B.O?
Answer: Existing senior managers that team up with a private equity firm have a number of advantages over other bidders when competing for the purchase of a company. At times, these advantages give management the edge in the bidding process:
1) The existing management of the company usually understands the company better than any other prospective bidder.
2) Management may know of hidden values in the company that will be hard for others to discover or realize.
3) Management also requires less time to evaluate the company and generally knows in advance that the company will soon be for sale.
4) Management often has well-thought-out plans for operating the company independently, including strategies to spur growth or reduce costs. An independent company requires less corporate reporting and can eliminate overhead costs associated with its parent.
Management usually has close, personal ties with the company's financing sources. A management-supported bid is often viewed sympathetically by the board of directors, which must ultimately decide to whom to sell.
Question: What kind of management buy-out exists?
Answer: There are several kind of management buy-out out there. An MBO can be initiated by the owner, the management or a third party.
Owner-initiated MBO:
• A corporation's owner or board of directors may realize that selling the company may be most effectively accomplished through an MBO. The board of directors may assist a management/employee buyout in either a privately negotiated sale or private auction of the company.
Private sale:
• In a private sale, the board can control virtually all aspects of the transaction. The board can negotiate with management regarding the terms and conditions of the sale. Additionally, the board can divest the company to raise the necessary financing to implement an MBO. This can be done entirely at the expense of the seller. The board's control of a private sale is, however, limited by its financing sources and by the need to protect the interest of minority shareholders.
Private Auction:
• The board can also conduct the sale through an auction yet still support an MBO as one of the bidders. The company can assist the MBO by using corporate funds to help fund the management's retention of expert advisors. It can also give management complete access to company books, records, and advisors. This offers the seller an additional bidder with certain competitive advantages and may result in the seller getting a higher price for the company than it might otherwise have obtained. Where the company is in distress, this often assures the seller of having at least one non-liquidation bidder for the company.
Management-Initiated Buyout:
• A management-initiated buyout is typically initiated by senior management and can be supported by the board and owners of the company, even to the extent of providing corporate funds to conduct such an effort.
Third-Party-Initiated Buyout:
• Any prospective bidder for a company can integrate the management into the overall ownership structure of the transaction. Such an effort can reap the various advantages associated with MBOs noted above and therefore enhance its competitiveness. However, strategic buyers are generally not willing to provide management with ownership and so generally would not be willing to participate in an MBO.
Question: How is the financing done in MBO compared to LBO?
Answer: It is done differently; however, the concept of using debt to finance the acquisition is practically the same. Virtually all MBOs are financed with a combination of senior debt, subordinated debt, and equity. The amount of equity required in a transaction is determined in part by the amount of debt that can be borrowed. The following describes the various components of financing in a typical MBO.
(Note: All the following information requires complex negotiation techniques with the help of a professional team of lawyers, accountants and business consultants.
But please, don't try this at home. J)
Senior Debt:
• Typically, 50% to 70% of an MBO's financing takes the form of senior financing. A senior loan is collateralized by a first lien on the current and long-term assets of the company. Senior financing is generally made available from banks, although privately placed notes to institutional investors are also possible, or a public issue of bonds or stocks is on occasion the source of senior debt.
Revolving Line of Credit:
• One component of senior debt is almost always a revolving line of credit. It is loaned to an MBO based on a certain percentage of the appraised orderly liquidation value of the eligible accounts receivables and inventory. Such loans are further limited by the predictability of cash flow to service senior debt. A revolving line of credit typically has a term of one year with renewal provisions. The interest rate ranges from the prime rate to three over prime.
Senior Term Loan:
• Another component of senior debt is a senior-term loan. This is a loan based on a certain percentage of the appraised fair market value of the land and buildings and the orderly liquidation value of the machinery and equipment. Such loans are further limited by the predictability of cash flow to service senior debt. The term for senior term debt is typically five to eight years. The interest rate ranges from the prime rate to three over prime.
Subordinated Debt:
• Typically, 15% to 30% of the financing of an MBO is in the form of subordinated financing. These funds are subordinated to senior debt and generally have only second claim to the collateral of the company. Subordinated financing is generally made available directly from subordinated debt private and public funds and, in large transactions, directly from insurance companies.
Alternatively, it is raised through initial public offerings of high-yield ("junk") bonds to insurance companies, pension funds and other institutional investors. In many MBOs, a large part of the debt is given back to the seller, comprising a portion of the purchase price. The term of such financing is typically six to 10 years, and principal payments are commonly deferred until after the senior debt is retired. These funds are loaned based on the amount and predictability of cash flow exceeding that required to service senior debt.
Equity:
• Typically, 10% to 20% of the financing of an MBO is in the form of equity financing. These funds make up the difference in the financing requirement and the financing available in the form of debt. Management usually invests in the equity of an MBO company together with a private equity, a corporate investor or a group composed of institutional equity investors. The seller and subordinated lenders sometimes receive equity in the new company. An institutional investor investing in the equity of an MBO typically seeks a 30% to 40% compounded annual total return over five years, depending on the perceived risk.
Dan Amzallag
http://www.theamericandreambook.org
How to buy or start any business using other people money
Consultation: 3013251550
Article Source: http://EzineArticles.com/?expert=Daniel_A_Amzallag
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