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4 Financing Mistakes New Business Owners Make

By BizBuySell

There are so many components that make up the launch of a new business that sometimes the most important part gets lost in the shuffle: financing.

To help set new entrepreneurs up for success, we’ve outlined four common mistakes that are made when the search for business or franchise funding begins:

  1. Not Cleaning Up Your Personal Credit
    When you’re applying for loans or new business credit lines, your credit score will be taken into consideration by lenders. If you haven’t demonstrated sound budgeting in the past, it’ll be all the more difficult for you to prove your capabilities. Be sure to pay all of your monthly bills on time and minimize inquiries to your credit report in advance of applying for funds.
  2. Not Doing Your Homework
    Many new business owners underestimate the amount of capital they’ll need to launch their venture and, by default, short-change themselves. Don’t let that happen to you. Be realistic about the equipment you’ll need; the cost of rent (or purchase of land); payroll; marketing and of course, an emergency cushion for unexpected expenses. It’s better to overestimate the amount you’ll need and have an extra reserve to draw from than to have less and require additional funding down the road.
  3. Not Using An Experienced Provider
    Financial firms and banks that offer deals that are too-good-to-be-true are often doing so out of desperation – and that’s never a good sign. Gimmicks can be a mask for deeper issues such as inexperience or poor customer service ratings. When searching for a service provider to help you facilitate funding, make sure they have a favorable Better Business Bureau rating and a respectable number of clients and transactions to prove their worth.
  4. Not Researching All of Your Options
    There are many new entrepreneurs that mistakenly think loans are their only option, and if they don’t qualify for them, they might as well pack up shop and go home. In reality, there are a variety of alternative funding methods that may be used with or independently of a loan. These could include, but are not limited to: retirement-fund financing (Rollovers for Business Start-ups); unsecured loans and portfolio loans. Be sure you’ve exhausted every option before you give up – chances are the right firm will be able to get you funded.

Most of all, remember to ask for help when you need it. There are professionals ready and waiting to help you through this most exciting time in your life.

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Should You Sign a NDA when Buying a Business?

Loren Marc Schmerler, CPC, APC and President/Founder of Bottom Line Management, Inc. and an expert Business Broker/Business Intermediary says,

“Recently, I came across this article “Should You Sign a NDA when Buying a Business?” and from my more then 30 years experience in the Business Brokerage Industry, to protect my Sellers and Buyers I have always insisted upon using NDA documents.”


Article from GlobalBX and Biz Builder.com, George Massalas

There are some steps in the business for sale process that benefit both the seller and you, the buyer. These steps protect the seller from “time-wasting” buyers, and the buyer from acquiring lemons. One of the most important questions when buying a business is “Can I see your financial statements?” Numbers provide vital information to help you decide if you should buy a business. Even if a seller has placed the business on the market, he or she remains reluctant to share highly confidential and sensitive records to any potential buyer. If the seller thinks you are a credible prospective buyer, he or she will let you sign a business non-disclosure agreement before the company’s proprietary information will be opened to you.

What is a Non Disclosure Agreement?
This is a standard legal agreement presented by the seller to the buyer to protect the former’s business if a potential sales deal falls through. This agreement gives both parties room for an open and honest atmosphere that may lead to a successful transfer of ownership of the business. The NDA is solely for the purpose of selling and buying a business, respectively.

The potential buyer cannot talk about the business to anyone, except to the parties included in the NDA, use gathered information, steal customers and employees of the business, nor use the information for commercial advantage. The seller can control the flow of information and protect its confidentiality.

What are the Benefits of a NDA to the Seller?
The seller avoids sharing operating and financial data with any potential buyer. Without a NDA, anyone, particularly a competitor, may use the information such as pricing, strategies and projections, employees’ data, etc. to his or her benefit. The seller does not want private business information to fall into the hands of those who may cause damage to the company.

With some level of comfort, the seller, after ascertaining that you have the financial capability to make the purchase, will show you the records after you sign the business confidentiality agreement. If, for some reason, you violated this agreement, the seller is entitled to relief, claims and damages for lost profit and harm incurred by the business.

What are the Benefits of a NDA to the Buyer?
By signing the NDA, you can study the business – review what has happened to the business, why it happened and what the future holds for it. Through the financial and company records, you can make a realistic assessment of the strengths and weaknesses of the business in both quantitative and qualitative terms. You can also determine if the seller’s asking price for the business is reasonable.

If you feel that the seller is not forthright in supplying the information you need, you may terminate efforts to buy the business or move forward at your own risk. The seller may be hiding information that should ring warning bells about the viability of the business.

What is included in the Business NDA?

  • the name, nature and location of the business.
  • how long the NDA will be in effect – usually several years.
  • the parties to the agreement – aside from the buyer, the advisers – the business appraiser, accountant, lawyer or
  • consultant – are usually parties to this agreement although typically only the buyer signs the agreement.
  • what information should not be disclosed – trade secrets; business strategies and plans; contact information of
  • employees, customers and suppliers; financial statements; cash flow records; contracts and agreements with
  • employees, creditors, financial institutions, and suppliers; liabilities; and other important data.
  • where and when the information will be supplied or where due diligence will be conducted. The schedule and
  • venue, usually for a number of weeks in the seller’s business office, should be specified. All documents usually stay
  • in the seller’s office, and neither you nor your advisers can take these documents with you.

The NDA is a legally binding contract between the seller and the potential buyer. The buyer who refuses to sign the NDA is considered a difficult or non-serious purchaser. It is best for the seller to avoid these “buyers”. In the same vein, the seller has to be forthcoming. Not providing information may result in failure to sell the business. If you are serious about buying a business, you need be ready to sign a NDA.

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Take a Small Business Workshop

Can you answer YES to any of the questions below:

  1. Are you tired of working for someone else and want to start your own business?
  2. Are you already in business, but you want to take it to the next level?
  3. Do you want to grow your business to the point where you can sell it for top dollar?
  4. Do you want to know how to create “customer loyalty programs” where referral and repeat business lets your business thrive?
  5. Do you want to know everything you must do to get your business ready for sale?

If so, THEN join us for LIVE, small business workshop, “Maximizing your Bottom Line and Building Sweat Equity” led by Bottom Line Management, Inc. founder, Loren Marc Schmerler and hosted by SCORE North Metro Atlanta, a recognized leader dedicated to helping small businesses.

Learn about the latest business strategies, and get answers to your questions from industry expert, Loren Marc Schmerler, CPC, APC.

 

Register today.