BBP Blog

Franchised Pizza Store Update

Note from Tom:
I have written about pizza shops and how saleable they are. I mentioned that I can count six within a six mile area of my home – and we live 30 miles + from Boston. I recently found some interesting figures from the recent PMQ survey. The question was: How many pizza shops are there within a 10 miles radius of your shop?

Less than 5	30%
5 to 9	36%
10 to 15	13%
More than 15	20%

Indeed there a lot of pizza shops. In addition, I can’t remember ever seeing a closed one. That doesn’t mean that some owners haven’t put the key in the door, but I doubt that many have for lack of business. The good ones are very saleable. Following is some information that is current and we will be adding to it later in the year.

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Posted on 8/31/2011 12:05 PM By Tom West
In: [Franchises], [Pricing & Valuation] | No Comments »

Tom’s Business Brokerage Rules of Thumb

Here are some rules of thumb on business brokerage covering a lot of different areas. Over the years I have found that there is a lot more truth in them than one might think. They are in no particular order. I can’t claim to be the originator of them all, so I must give credit to a lot of my colleagues over the years.

The following rules are tried and true.

“The first offer is almost always the best one!”

“The reason for sale a seller initially provides is very seldom the real one.”

“The real selling price is half-way between what the seller thinks it’s worth and what the buyer thinks it is.”

“When the seller’s attorney insists on holding the buyers deposit...

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Posted on 8/30/2011 10:31 AM By Tom West
In: [General Business Brokerage] | No Comments »

Financing the Small Business (Part 3 of 3)

Where is the SBA Going?

For those business brokers who don’t understand seller financing and remain dependent on SBA financing, continue reading. The “Great Recession” may very well change the rules of selling businesses.

“Conclusions -- The SBA retains political support because it is a tool for policymakers to signal their support of small businesses. At the same time, SBA supporters have cultivated a myth that being against the agency is equivalent to being against small businesses. In reality, the great majority of American small businesses have thrived without government subsidies. The SBA's lending programs benefit a relatively tiny number of businesses at the expense of taxpayers and the vast majority of businesses that do not receive government support. Even though there are no substantial economic benefits of the SBA, the agency has remained politically entrenched. It gains particularly powerful support from the banking industry. However, with today's huge federal deficits, policymakers should begin eliminating unneeded business subsidies in the budget, including SBA spending.”

Source: “Terminating the Small Business Administration” by Veronique de Rugy and Tad DeHaven

Most people agree that small business is important in the growth of the US economy and the increase in jobs. However, a very recent survey in the Rasmussen Report reported that 58 percent of likely voters do not believe that the federal government should provide loan guarantees to lend money to someone looking to finance a business. Many people (47 percent) still think that most small businesses get started (or purchased) with bank loans. Business brokers know differently.

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Posted on 8/25/2011 9:25 AM By Tom West
In: [Financing] | No Comments »

Financing the Small Business (Part 2 of 3)

Yesterday's posting addressed how financing is a major issue in the sale of businesses today and yet how the source of financing that has effectively dried up didn't even exist not so many years ago.

So, where does that leave us?

If you don’t know what seller financing is, read on. If you think SBA loans will come back, read on. It used to be, and it is now, that if the seller really wants to sell, he or she is going to finance the sale. There is no outside money and the sooner you can get the small business owner to accept this, the sooner a lot more deals will be made. Sellers may not like it, but if they are serious about selling, the sooner their business will sell.

The buyer will have to come up with 30 to 40 percent as a down payment. The seller will carry the balance on terms that make sense for both. After making the payment to the seller and paying the costs of doing business, there has to be sufficient funds for the owner to feed his family. The ROI is what the new owner receives when he sells it.

The trade-off for both is...

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Posted on 8/24/2011 2:00 PM By Tom West
In: [Financing] | No Comments »

Financing the Small Business (Part 1 of 3)

There are two questions on our latest survey having to do with financing the sale of a business. They are as follows:

Q. What do you think were the biggest reasons for the decline in number of deals, sales, dollar volume, etc.?
(The state of the economy is a given.)
A. #1 = Lack of financing

Q. What was the main obstacle that caused pending sales from closing?
A. Financing 44%

The responses to the above questions should leave no doubt that financing is a major reason, if not the main reason, that more deals are not made. Now I realize that the term outside financing as opposed to seller financing is not mentioned. My guess is that seller financing is not an issue or a reason for very many sales not closing.

What is left is bank and SBA financing. I have written about this before, but I’m still not sure where the issue of financing began. It was never an issue years ago. Banks never did finance the sale of small businesses. Sure, there were some exceptions. Experienced buyers could borrow to buy a second unit, or if they had bank connections, they could get financing to purchase a business. But, well over 90 percent of small business sales were financed by the seller. The SBA, although it existed, really played no part in lending or guaranteeing business loans from other sources.

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Posted on 8/23/2011 9:05 PM By Tom West
In: [Financing] | No Comments »

ValuTrax ValuHints

Comment from the BBP Staff

A Note on Engagement Letters – With the large increase in business brokers providing business valuation services, making sure that the client knows exactly what he or she is getting is critical. There have already been some issues with business owners thinking they are getting a business valuation that can be used in legal situations, to address IRS problems, etc. Most business brokers really only supply “opinions of value” which serve most purposes, but obviously not all. Using an Engagement Letter which outlines exactly what the client is receiving can protect the business broker or appraiser from any misunderstandings or worse yet, any legal problems.

We realize that the following article concerns a program we are marketing – ValuTrax, but it should be of interest to anyone providing valuation services. Keep in mind that even if you are just providing a business owner with an informal “written” appraisal or opinion of value or pricing report – you should still get something in writing and signed that tells a potential seller that it is just your opinion of what you think it should sell for. Regardless of what you may tell potential clients, if they have a written report on the value of their business, they could end up using it for purposes other than what you intended.

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Posted on 8/19/2011 12:22 PM By Wayne Quilitz
In: [Legal & Tax Issues], [Pricing & Valuation] | No Comments »

When You Buy a Franchise Pretend You’re Selling It in Five Years

When individuals purchase a franchise most will plan on selling the franchise at some future date or operate it until their children can take it over. I’ve encountered some individuals who plan on operating the franchise for the long term until retirement. If you’re considering buying a franchise a good approach to take is to plan on selling the franchise as part of your analysis. Learn why this strategy can be helpful.

When evaluating a franchise opportunity it might be useful to consider: What if I wanted to sell the franchise in five years? This scenario may not be your actual objective, however, it can change the way you evaluate and consider a specific franchise opportunity. It can create a sense of urgency and a timeline that will emphasize certain aspects of the franchise. Private equity funds and venture capital firms take a cautious look into potential businesses they might invest in. The reason is because they want a return for their investors in a period of 3 to 5 years. This benchmark requires them to evaluate an investment opportunity with a critical eye. You can use this same approach, although you may not have the benefit of Ivy League MBA’s to perform the analysis.

In addition to the questions and areas that ought to be a part of any franchise evaluation lets place a bit more emphasis on the following areas:

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Posted on 8/16/2011 2:18 PM By Ed Teixeira
In: [Franchises] | No Comments »

Business Valuation.......It's not just the figures!

Yes, financial information is important. But often non-financial information is more important in determining the value of a business. Many of the real value drivers do not appear on the Financial Statement, so it is critically important to fully understand the company’s operation.

People
How reliant is the business upon the owner’s skills, experience, and relationships? Are these transferable or does the goodwill walk out the door with the owner? And are there key staff who it would be difficult to replace, or whose loss would damage sales and profits?

Products and Services
How vulnerable are these to economic changes or legislative changes? Are they exclusive or is there strong competition out there? Are there any supply contacts or customer contracts in place to ensure profitability going forward?

Premises and Facilities
Is there a sound lease in place if the business premises are leased? If so...

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Posted on 8/11/2011 12:00 AM By Clyth MacLeod
In: [Pricing & Valuation] | No Comments »

Hot Business List -- July 2011

Below you will find the current “hot” business list courtesy of data from Businesses For Sale (www.businessesforsale.com). We asked Businesses For Sale for a monthly ranking of business types based on the number of “hits” on their site. This ranking is not based on the actual sale of businesses.

Top 10 Main Street Businesses:

1. E-Commerce
2. Convenience Stores
3. Websites

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Posted on 8/9/2011 11:40 AM By businessesforsale.com
In: [Hot Business Lists] | No Comments »

Managing/Mentoring Business Brokerage Agents (Part 2 of 2)

This article is a continuation of yesterday's posting.

WHAT DOESN’T WORK:

If the manager has plenty of experience, knowledge and past success at listing and selling, but fails to “show and tell” in live buyer/seller interviews, with each new agent, in plenty of live interviews with the new agent’s prospects, management then is guilty of “wishful thinking” and is likely to fail to capitalize on the potential of each new agent. Forcing agents to “learn by doing”, on their own, is incredibly wasteful of the valuable leads the agent is working. They simply “don’t know what they don’t know”, and it’s not their fault, if they are undertrained, that they fail to make all the deals possible.

Or, if management doesn’t know the answers that are needed to motivate a buyer prospect to move along in an orderly manner, or if management doesn’t know how to convince a reluctant seller to list their business, management then can’t help a new agent, and/or management might even be guilty of teaching new agents “bad habits” that are ineffective.

If management doesn’t have the answers, they should form an alliance with someone who does know the answers, and who is capable of providing that mentoring/leadership to management and to the new agents.

Agents who are supervised by managers or agency owners who “don’t know what they don’t know”...

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Posted on 8/5/2011 10:49 AM By Bill Martin
In: [Office Management] | No Comments »

Managing/Mentoring Business Brokerage Agents (Part 1 of 2)

I think I’ve tried it all, folks.

Since entering business brokerage in 1982, and hiring/training/supervising agents for most of those years, in offices nationwide, I’ve come to understand the true meaning of the old saying…”managing sales people is like herding cats”….In other words, it isn’t easy.

But, hiring and managing agents is a way for a brokerage owner to “Xerox” yourself, and theoretically generate more income than a one man agency can generate, so, like many other agency owners in our industry, I’ve usually been engaged in building multi-agent brokerages, with 5 to 25 agents per office.

THE “LEAVE THEM ALONE” THEORY:

I’ve hired agents, trained them, then hoped that, somehow, on their own, with minimum management involvement, they would figure out all the answers needed, by themselves, and magically turn into productive listing and selling agents.

I’ve worked especially hard at the interview process, so that I only hire “newbies” that have strong sales backgrounds, and who preferably have impressive resumes, believing that those high quality people are most likely to survive and thrive, with minimum supervision. This “leave them alone” theory, in my experience, rarely works, and is counter productive, “wishful” thinking.

THE “SALES MANGER THEORY”:

I’ve hired other agents, trained them, then turned them over to a competent sales manager, who is then required to spend lots of time with each new agent, making seller calls with them “in the field”, and sitting in on buyer interviews, and...

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Posted on 8/4/2011 10:41 AM By Bill Martin
In: [Office Management] | No Comments »

How to Get a Testimonial Letter

Recently, I received a call from Katrina Mitchell, President of SPEAK!, who gave me an idea that I should share with you. Katrina was instrumental in helping us engage Troy Hazard as our Keynote speaker for our Annual Murphy Conference in May. Her company works with many different speakers, but after talking with me several times, she was convinced that Troy was the perfect match for our needs. For those of you that attended the conference, I am sure that you will agree with me that she was right.

Katrina called me to follow-up on the conference and make sure that everything went as planned. It was important to her that we were happy. She asked me a lot of questions about what people thought of Troy, and why he turned out to be such a good fit for us. She also wanted to make sure that she had done everything that she had promised us to make the process easy and asked if we would be willing to use her services again for our next conference. Since we were extremely happy with everything, I heaped on the praise and promised that I would never think of hiring another speaker without using the services of SPEAK! After all, her marketing tag line is “Working with Franchisors to Find the Right Speakers-Every Time.”

After we were finished discussing the results of the conference...

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Posted on 8/2/2011 11:00 AM By Roger Murphy
In: [Marketing] | No Comments »