According to a recent study by the Kauffman Foundation, a Kansas City, Mo., organization devoted to supporting entrepreneurship, “Rather than making history for its deep recession and record unemployment, 2009 might instead be remembered as the year business startups reached their highest level in 14 years — even exceeding the number of startups during the peak 1999-2000 technology boom.”

“Young people are keenly aware of the recent economic downturn, and have seen parents, relatives or friends lose their jobs,” says Alice Horn, executive director of the South Florida chapter of Network for Teaching Entrepreneurs. “They understand they cannot count on the same job — or even the same career — for an extended period in the future. For growing numbers, this means ‘making their own job’ as entrepreneurs.”

Although the highest spike in startup rates was among people ages 35-44, many young people are also turning toward owning their own businesses as an alternative to finding a full-time, entry-level job.

Read more by Kaitlin Madden, Careerbuilder.com writer, on three young entrepreneurs

The beginning to reach an end, which is a deal, but first it needs to be the right opportunity. It is best to identify this by the time the first meeting is complete, or the sooner the better primarily due to the factor of time involved. The consideration here is that the seller has diligently prepared for the sale in terms of information that will support the value of the proposition.

There are several questions when beginning the merger and acquisition (M&A) process for buyers and sellers involved in the sale. Business owners on both ends determine areas related to revenue, expenses, and growth (and projected growth) as a result of prospectively combining businesses with core competencies by adding services, staff, work space, products, inventory, equipment, machinery, etc.

The continuation of the business and operations will include a lease or purchase of commercial real estate, or can include some combination. Who is moving where and how much space do we we need come into play. The length of the lease can be a determining factor from the standpoint of capability to exit the lease with approval prior which also relates to ability of some buyers to accomodate. Some business owners buying a business may first have an interest in leasing office space prior to buying commercial real estate. A purchase right by the seller to the buyer can be agreed upon in the event of a commercial property sale. Commercial space available for future growth needs will determine the options as well. 

Dependent on the situation, business, and nature of the sale the following options include:

•   Lease reassignment to buyer
•   Purchase of existing office space by buyer
•   Seller moves to buyer premises
•   Moving both locations into new space whether lease or purchase

Provided below are 40 commonly asked questions for the M&A process. These questions will provoke thoughts to others related questions dependent on the sale and individuals involved. Thinking like the other party is important, so a question for buyer or vice versa has an impact or opportunity for the other party. Questions to arise from the below may result in the following:

•   Requesting more information to get more detail
•   Gathering facts to overcome objections
•   Negotiating items
•   Working toward a mutually beneficial deal overall

Answers to these questions vary and are dependent on aspects of the sale for the specific to the business opportunity.

1. What is the tangible and intangible value of the business?
2. What assets are being sold and what assets are not?
3. What percent of products and services account for revenue?
4. What is the down payment? Is there a risk of a small down payment?
5. Where will the down payment come from?
6. How will the business owner selling be paid for the business?
7. In what amount of time will the purchase pay for itself?
8. How do I know this is the right business opportunity?
9. Who are the best buyer candidates for my business?
10. Should the name of the business stay or change?
11. Will customers transition easily and which customers will not?
12. How much time should be accounted for transitioning clients?
13. How will we implement staff and what will their responsibilities be?
14. What options now exist for employee health and other related benefits?
15. What business expenses can we reduce in the result of a sale?
16. How will lenders see the transaction?
17. How much will a lender loan? Interest rate for down payment?
18. How will the sale be approved by the bank? How long?
19. What are the bank requirements? What do they require?
20. What happens to a revenue decrease or increase after the sale?
21. What is the transition strategy?
22. When should due diligence be conducted?
23. What is a Letter of Intent (LOI)?
24. What is the purpose of the LOI and what details should be covered?
25. How should customers view the sale?
26. Is it necessary for the business owner to transition the business?
27. In what amount will the owner be compensated after the sale?
28. Do non-competes exists?
29. What changes will occur related to business and operational policies?
30. What are the lease contingencies?
31. What is the appraised value of the commercial real estate?
32. How much space is needed after a purchase? Room to expand?
33. What lease options exist and will the business be moved?
34. How far can the business be moved?
35. What indemnification is availabe to buyer and seller?
36. What are the goals of both parties for the closing date?
37. What is the effective closing date?
38. What is the role of my attorney and CPA?
39. What objections can arise from the attorney or CPA?
40. What exhibits should accompany the Purchase Agreement?

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The preparation of the business opportunity and the positioning of it in the market will begin with questions.  Below is a short sample list of these questions supported in a current forum where we participated.  The first component is gathering information and being ready for future discussions intended to lead to a mutually beneficial business relationship.  Any good sales pitch starts with who are you, what do you do, what makes you different, and why.  Looking at a business for sale opportunity as a buyer will travel a little further.  You will be able to answer the above questions and more.  This will become more important for future engagements and meetings with other equity seekers. 

Business owners have managed the overall operation of the business for years and now it is time to create the picture and presentation of it.  A business profile for selling a business will go a long with in documenting, answering upcoming questions about the business opportunity and for the overall purpose of value.  This one instance that will enable the business owner, and partner equity owners when applicable, to prepare and position the business based on a period of time, in cases, upwards of three to five previous years.  This is a significant amount of time to account for along with the present, and as well, past revenue and annual growth is fundamental in where the business is headed and how efficient the business is in terms of operations and the management of it. 

Documenting and creating a business profile is essential for many reasons as provided above.  More so, it will offer an overall picture of the business and will determine its path for success.  Determining the strength of the business and what it offers along with knowing perceived weaknesses are all opportunities.  Identify opportunity in both areas and what it means. 

Being organized has always saved time.  Here, with a business profile, many of the business facets will help identify the most applicable purchaser prospects of the business for sale for equity investment seekers.  This will also save time in the long run for you and everyone as it is a longer sales process. 

Future discussion will lead to a question like this.  Is the opportunity for me or is it not?  Perhaps, you need show me why it is the right opportunity based on the business and many aspects it represents from a business stand point:  services, revenue, employees, top customers, real estate, future business operations, technology, software, databases, and so on.  Terms are best created by synergy and flexibility in both parties at the table. 

Below is a sample list of questions including:

Business Culture & Employees

Ÿ    What is the corporate culture?

Ÿ    How many employees and tenure?

Ÿ    What are their job responsibilities, titles, and who reports to whom?

Ÿ    What agreements exist?  (Non-disclosure, etc.)

Ÿ    What is the compensation of each of the employees?

Ÿ    Is compensation average or above average?

Ÿ    What benefits are provided and what is the expense?

Ÿ    What is the owner and partner compensation?

Ÿ    What benefits through a merger can improve or lower expenses?

 Customer Base – Revenue

Ÿ    How many total customers?

Ÿ    How many customers per office?

Ÿ    How long has the business been servicing these customers?

Ÿ    What is the market share comparative to other competitors based on the parameter decided?

Ÿ    What type of services offered?

Ÿ    How many services are there?

Ÿ    What services account for what percentage of revenue?  How has this changed over the years?

Ÿ    What services does the business offer that we do not as a buyer?

Ÿ    What services derive the majority of revenue?

Ÿ    Who are the top 10, 20, or 30 clients and what do they contribute each for total revenue and in what service areas?

Ÿ    What is the work in progress (WIP)? 

Ÿ    What work has been billed, but not yet collected?

Ÿ    Where and how do sales occur?

Ÿ    What is the annual percent of growth?

Ÿ    What percent account for online purchases vs. offline?

Ÿ    What is the billing process and what are the associated fees to do business?

 Furniture-Fixtures-Equipment *FFE

Ÿ    What FFE exists in each location?

Ÿ    What FFE is available for purchase?

Ÿ    What is the age of FFE?

Ÿ    What FFE is not available for purchase?

Ÿ    What was the initial purchase price of each item?  What is today’s fair market value?

Ÿ    To replace all equipment today, what it is the price?

 Ownership of Commercial Real Estate

Ÿ    Is the owner interested in selling the building(s), leasing, or both options apply?

Ÿ    What is the value of the property?

Ÿ    What is the age of the property?

Ÿ    Is there a current tenant or tenants? What is their lease term and notice period?

Ÿ    Has the commercial property or commercial properties been appraised and when did this occur?

Ÿ    What is the market value today?

Ÿ    Is the purchaser interested in acquiring the commercial space?

Ÿ    If not, will the owner consider leasing it to the buyer or to another party?

Ÿ    Will the owner consider leasing to new business owner(s) to create business sale and for what duration of time?

Ÿ    If the new business owner leases the building and becomes interested in purchasing the building at a later date, is a first right arrangement available?

Ÿ    What improvements have been made to the building during ownership?

Ÿ    What upcoming improvements will be needed and how much will it cost?

Ÿ    Are there other parties presently that would known to consider buying or leasing the commercial property or commercial properties?

Ÿ    What is the annual expense of owning the commercial property or commercial properties versus leasing or moving the business?

Ÿ    Will the annual cost increase or decrease?  Why?

 Lease

Ÿ    What are the parameters of the lease assignment(s)?

Ÿ    What is the cost per square foot?

Ÿ    How long is the lease term?

Ÿ    Can the lease be terminated or transferred?  (For relocating or moving office space into buyer space.)

Ÿ    Does the buyer have adequate space to accommodate employees of the acquisition in my space or their space? 

 Technology & Software (T&S)

Ÿ    What technology and software presently exist?

Ÿ    What systems are compatible with prospective buyer groups?

Ÿ    What systems are not?  What adjustments, cost of purchase/license of T&S, and transfers needed?

Ÿ    How long will it take to set up technology and communication?

Ÿ    How is customer data managed?

Ÿ    How does this pertain to billing?

Ÿ    What is the expense of T&S?

 Positioning a Business for Sale

Ÿ    What transition will be offered and for what period of time?

Ÿ    What compensation will be offered?

Ÿ    What is the prospective deal structure?

Ÿ    What is the value of the business?

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The backbone of America’s wealth is its small business owners. An entrepreneurial streak is embedded in the country’s DNA. It is the reason why people the world over come to the United States to pursue the American dream.

Still, purchasing a business is one of the biggest investments a person will make in their lifetime. When the time comes to invest in a business, entrepreneurs can choose to invest in an unproven start-up or team with a franchise company that has an established track record of success. Franchising has been an established way of doing business in the US since the 1850s and was made popular a century later by fast-food restaurants like McDonalds and Burger King. With franchising, entrepreneurs pay a fee to the franchisor and in return, are allowed to apply their brand.

In franchising, they say work for yourself but not by yourself. While an unproven start-up may prove to be successful in a confined area, there are a number of reasons why franchising has worked for countless entrepreneurs. Here are five of them:

Instant recognition: Probably the best part of buying into a franchise brand is the knowledge that its brand identity is already established. In most cases, franchises have built a well-known, highly-visible brand identity via a dynamic advertising scheme often on a national level. For a small business owner just opening the doors of a new restaurant or cleaning business, this is fundamental. Consumers will always turn to the business that they know and trust. Entrepreneurs are buying instant credibility when they buy into a franchise system. For start-up entrepreneurs, that credibility can take years to establish.

Training: Just because you’ve never worked in fast food or the pet industry doesn’t mean you incompatible to certain strands of franchising. While an entrepreneur is investing financially in a franchise, the franchisor is also making an investment in the success of a new franchisee. A flailing franchise will ultimately make the whole organization look bad. In that sense, the franchisor will very often provide a comprehensive training system for new franchisees. You are not alone with a franchise, and many franchisors will take you to their corporate headquarters and teach you how the business operates.

Support: Once you cut the ribbon on your franchise, the franchisor will still provide support for you. The franchisor will be able to guide you through those growing pains, and will often be only a phone call away.

The Franchisee Family: When you open a franchise, you are joining a family. There is large, sometimes national network of other entrepreneurs who have had similar experiences. They provide an invaluable resource who can guide you through trickier moments of running business.

Affordability: The thought of paying a franchisee fee turns many people off of the idea of investing in a franchise. Yet these fixed fees are a sort of hedge bet against failure. While owning your own business means taking all of the profits for yourself, the reverse if also true if you fail. With a franchise, the listed fee is a sort of investment against failure. In a nutshell, these are only some of the reasons why so many entrepreneurs have put their faith (and fortune) in a franchised business.

—

Donald Cranford is an editor with Franchise Direct (http://www.franchisedirect.com), one of the world’s most popular franchise portals.

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