4 Ways to Get Approved for Auto Loans When You Have Poor Credit

Having a low credit score shouldn’t keep you from driving the car of your dreams. In fact, auto loans are available to people who have a less than stellar credit scores, so don’t let your own numbers stop you. You can obtain the financing you need wanted by using these four tips.

1) Have a Large Down Payment

Financing companies and lenders are more likely to make a payment plan with you if a considerable amount of money is placed down on your advance. Try to save 10-20% of the money you need to pay off the car. You can do this by making a budget plan where you set aside a certain percentage of your income every month. The more money you can put down as a good faith payment for your financing, the better your chances are of getting an auto loan you can use to buy a great automobile.

2) Consider a Co-signer

Do you know someone who has a terrific credit score who may be willing to co-sign auto loans with you? If so, this can increase your chances of getting great financing with lower rates. A co-signer is a person who joins your loan with you, and they take on the responsibility of your payments if you fail to follow through. Often, family members or even your spouse are likely to volunteer to help you in this manner. It’s important that you choose a co-signer who has a credit rating of 700 or better in order to offset your lower score in the eyes of lenders.

3) Show Proof of Credit Responsibility

Perhaps the best way to get auto loans is to prove that you can repay borrowed money. The way you should do this is simple-begin paying off credit cards and other types of advances, starting with the ones you can pay off sooner. You want to be able to show at least six months of reliable and timely payments on everything from credit cards to medical expenses. When you apply for assistance on your car purchase, your lender will look at your credit report and will notice any delinquencies, charge offs, and late payments right away. The less debt you can show on a report, the more likely you’ll be able to get auto loans no matter your score.

4) Bank Where You Want to Get Financing

Choose a banking institution that you would like to get automobile financing from and open a simple checking or savings account that you use a few times a month. This is a great way for you to show good faith that you are able to pay a loan back. Banks and their lending offices are more likely to offer money to customers who use their services already than people who are considered strangers with no reliable history of responsible banking.

Getting a loan to buy an automobile is a great way to build credit and give you more freedom. Use these great tips to get the financing you need and buy a reliable car that you will love.

30 Jun 2015

3 Things for A Successful First Car Loan

The harder you work, the luckier you become.

Every first-time car buyer should keep these words close to his heart. Auto loan process is difficult for everyone. But, it becomes a harrowing experience for first-time buyers because of their ignorance and inexperience.

If you are in the auto financing market for the first time, do not worry. You need to take care of three important things because they will ensure a successful car buying process.

1. Cash

Days of barter are over; the era of cash is forever.

You cannot buy anything without cash. Even if you apply for a car loan, you will be required to make a down payment. So, it is important that you work-out your budget before buying a car.

You will need cash for the following things:

>> Down payment

>> Monthly payments

>> Insurance

>> Registration fees and taxes

>> Fuel

>> Maintenance

So, make sure that you are ready to assume the financial responsibility of a car before searching for one.

2. Credit score

After the days of report card, the days of credit report begin.

Just like colleges and universities check your SAT scores before approving your admission request; lenders check your credit score before approving your car loan application. Your credit score will determine your credit worthiness and help lenders in deciding the interest rate. Ninety percent of lenders opt for FICO score provided by any of the three credit bureaus: Equifax, TransUnion and Experian.

Every credit bureau gives different importance to credit score components. So, there are differences in each of your credit score. And, every lender has the right to use a credit score from any of the credit bureaus. So, it is important that you concentrate on your credit score range and not your exact credit score number.

If you have not obtained any type of credit before, you will not have any credit history. Following are the options for car buyers with zero credit score:

a. Obtain a no credit auto loan program for your first car.

b. Ask your parent to assume the responsibility of the loan.

c. Build your credit score by obtaining a secured credit card, department store card, etc.

3. Co-signer

Usually, a first-time car buyer has zero credit history. This creates a risky situation for lenders. They don’t know whether they can trust someone with no history of making regular payments. It is for this reason that lenders require someone with established credit history to co-sign you loan agreement.

Remember that a co-signer is different from a co-applicant. A co-signer has no right on the ownership of the car whereas as a co-applicant has equal right. You can ask your friends or parents to become a co-signer.

If you have trouble finding a co-signer, you can request the lender for approving your loan application without a co-signer. Although, no co-signer option should be considered as the last resort because it is expensive.

So, these are the three things that should be kept in mind before searching for your first car loan. Remember the words of Charles Buxton: “In life, as in chess, forethought wins.”

28 Jun 2015

A Cosigner Guarantees Easy Auto Loan Approval

Do you dream of a big car? Is your credit score low? If so, do not let the lender ruin your chances of getting easy auto loan approval. You should try reaching out to a friend with a good credit score and ask him to cosign your auto loan. Applying with a cosigner will help you qualify for the loan easily.

Who is a Cosigner?

A cosigner is a credit worthy person who agrees to share your loan obligation. If you are a first-time car buyer or a college student, with zero credit score, getting the help of a cosigner makes a lot of sense. It is because he will lend a helping hand to you as well as help you to build a good credit score.

A cosigner increases the chances of getting easy auto loan approval. His credit score adds weight to your auto loan application. Basically, a cosigner guarantees the lender that you will make regular payments. If you are unable to do so, the cosigner has to assume the responsibility of the payments.

What are the Requirements for becoming a Cosigner?

1) Willingness to cosign the auto loan

The cosigner must be willing to make the payments, if you miss them. It is because he is equally responsible for them. Remember that the agreement should be in writing, as the lenders do not accept verbal agreement from the cosigner.

2) Proof of cosigner’s ability to pay

A cosigner must prove that he earns a sufficient income to cover the amount of the auto loan. He must have a stable employment status. If he fails to prove his financial capability, the lender may reject the auto loan application.

3) Cosigner’s employment and residence

Stability in employment and residence of the cosigner is prerequisite for easy auto loan approval. The lenders are in favor of those cosigners who have lived at one address and have worked in their present job for a long period of time.

What are the Advantages of having a Cosigner?

1) Low interest rates

A cosigner not only gives you an opportunity to have a reliable transportation option but also saves you from high rate of interest.

2) Credit Score

A cosigner will allow you to obtain easy auto loan approval and help you build your credit score. In order to build your credit score, you must make regular payments to the lender.

3) Experience matters

A cosigner should be a person with a good credit score. He can also provide you with valuable financial advice. So you will not only receive better interest rates but also a sound financial advice from your cosigner.

What Happens If You Miss The Payments?

· If you miss the payments, do not think that the lender cannot sue the cosigner. As the cosigner is responsible for the auto loan, the lender will not shy away from suing him.

· When someone agrees to be your cosigner, he puts his credit score at risk. And, if you fail to make the payments, it hurts his score as well.

When a cosigner agrees to sign the auto loan application, he accepts the equal responsibility to make regular payments. So don’t risk the cosigner’s credit score by avoiding the payments. Remember that when you make regular payments to the lender, it allows you to drive your dream car and also wins your cosigner’s trust.

25 Jun 2015

No Credit Auto Loans – Tips to Help You Close the Deal

It’s the perfect case scenario: you have cleared your driving test and you have been saving to buy your dream car for a long time. However, before signing that dotted line on your auto loan agreement, there is an element of hesitation in the air; stemming from the fact that you don’t have any credit history. Your credit history can be a deciding factor in knowing whether your loan is approved or rejected. Many a times, however, there just isn’t enough credit history to get started with.

There might be many reasons why a person has a no credit history. Usually, college graduates and teenagers have no credit history because until now, there wasn’t any chance for them to establish a credit record.

Another instance of people with no credit history is recent immigrants who moved to a new country and haven’t applied for an auto loan, as they mostly prefer to make cash transactions. But applying for a loan can be a good thing, especially when you borrow wisely and sincerely pay off the debt in the given term period. Also, an auto loan means that you can save the amount equivalent to a car and invest it elsewhere. If you have newly graduated from college or moved to a different country, the amount you save can be of incredible help to you.

So, how can you qualify for An Auto Loan with No Credit History?

· Find a co-signer

A co-signer is typically someone who adds his or her name to your loan, thereby agreeing to repay the loan on your behalf, if you default on the loan. Being a first time car buyer, a co-signer with a good credit rating can be a huge factor in getting approval for your loan.

The only measure of checking if you can repay your auto loan is to maintain a good credit history. However, in the absence of a credit history, a co-singer with a good track record can act as a back-up if you cannot repay your loan. Therefore, having a co-signer instills a sense of security in your auto lender and he will be more willing to give you an approval for the loan.

· Increase the down payment amount

An auto lender is more likely to approve your auto loan if you are willing to pay a hefty down payment prior to availing the auto loan. Usually, a twenty percent of the car price is considered to be a good amount for making down payment. However, if you can pay an amount greater than the customary amount on the down payment, you are more probable to drive off with your auto loan. The reason behind it is that a hefty down payment reduces the overall loan amount and the auto lender is assured of your payments.

· Spot a suitable loan

Different auto lenders may propose varied auto loan programs depending on your situation. There might be some loan programs tailor-made to your specifications, say; some may be designed for students out of college while others may be drafted for residents new to the country. Keep an open eye for such accommodations that may fit into your loan program.

Being a first time car buyer without any credit history is not all that difficult. There are many auto lenders who provide auto loans to people with no credit history. Keep those above points in mind and, soon, you will be closing your first auto loan deal for your new car.

20 Jun 2015

3 Elements of A Good Service Provider

Whether you are looking for a service provider in household energy, telecommunication, banking and finance, insurance, travel, technology or even shopping, you deserve nothing but the very best as a customer. The best you can do to ensure that you get what you truly deserve is taking time to select your service provider. Below are the three most important elements that you should look for in a service provider if at all you are to have a good experience as a customer.

1. Quality

No matter the kind of service you are looking for, you should get quality. The different brands in the market offer varying service qualities and this means that you should be careful to get good quality. The quality should be all rounded meeting with your needs and expectations and even going beyond. The company should be well packaged and the service developed to meet with customer needs from every angle. You can use reviews to determine the quality of the service you are about to get from your provider. For instance, when you are getting an energy company for your electricity, you should not only have good tariffs, but also consistency in the supply of energy so you don’t end up dealing with frequent outages that can interfere with your schedules or work.

2. Customer service

Not many people remember to look at the customer service offered by a service provider yet it is one of the most important elements. Whatever the service, you definitely will reach a point where you need some sort of assistance. Customer service departments are not just there to solve your problems with the service you are getting, but to also offer you any form of information you might be in need of. A good service provider should have a solid customer department so every customer is assisted in a satisfactory way. Actually, you should be able to contact the customer department at any given time of the day and even night to get the help you need relating to the service in question. A provider who values customers will put them first so they do not end up losing them to competition with better customer service that everybody is looking for today.

3. Fair prices

Sure quality does matter and when you are looking for top quality you might need to pay a higher amount. However, a good service provider will not only offer you quality service, but they will make them available to you in the most competitive and fair prices. You should not be ripped off just because you are getting quality services. Today, companies that are successes are not those with higher charges for the services they offer, but those that make the quality services accessible at fair prices. A good company should be able to segment its markets in such a way that nobody is left out in accessing the good services because of the rates attached to them. You should be able to find a category you fit in financially.

20 Jun 2015

What’s The Best Tool To Manage Inventory?

The success and failure of a business can be determined by the efficacy of the stock management practices it employs. Certainly, poor stock control can lead to cash flow problems. In fact, this may even lead to a business collapse. It is for this reason that you must manage your stock levels very closely.

Generally, plenty of the assets of small businesses are tied up in inventory. A field service company’s inventory can include any raw materials, work in progress and finished products they have and intend to sell in order to gain income. Determining how much stock your business really needs is where inventory problems often begin.

Too little stock can cause delays and even lost sales from discouraged clients waiting for parts to arrive or perhaps jobs to be finished. Too much stock, on the contrary, means your costs go up and your cash flow goes down. Bear in mind that if you have extra stock, you will need to pay more in handling, storage, security, and insurance. Also, there will be an increase in the possibility of damage and loss.

The main goal of inventory management is quick turnaround, ensuring low costs and guaranteeing customer satisfaction. Due to the fact that inventory management directly influences cash flow, you need to have a solution that will make sure that you are indeed managing your inventory properly. So if you think that your current inventory systems are causing cash flow woes, it is time for you to implement a system that does all the management and monitoring for you. In other words, you must have an effective tool to manage inventory.

Important Considerations When Choosing The Best Inventory System

Stock and Cash – With plenty of inventory at hand, your cash will be tied up and cannot be used for other important business activities. With an inventory tracking solution in place, you will know exactly what you have on-hand and if there is a need to order for more. Efficient and proven management systems will incredibly increase your cash flow whereas poor management will cripple your business.

The Type of Stock – You need to have a system that monitor what is selling and what is not. Fast-moving stock and goods can bring in cash faster while slow-moving inventory can actually restrict your cash flow. Thus, it is very crucial for you to know this slow-moving stock and consider evaluating it again if it really needs to be in your warehouse.

The Level of Stock – This refers to the volume of inventory that you maintain on hand for sale. Today, managing your stock does not necessarily mean that you must stock more than enough inventory in your warehouse. You must have a system that efficiently monitors what you have on hand and notifies you if it is time to restock. If you commit to better stock management, you will certainly reap the cash flow rewards.

15 Jun 2015

Concerns When Choosing a Clinical Research Organisation

There are many areas of the world where clinical research is being carried out for a range of different pharmaceutical companies studying numerous innovative treatments. Particular areas of the world where trials are on the rise include Latin America and Asia, which offer large populations that are often keen to participate in this kind of research.

Of course, for many pharmaceutical companies carrying out the clinical trials this requires finding a reputable company that can do so in the region of the world where they wish to conduct their research. This is important not only to ensure the quality and validity of results, but also that national regulation is followed.

There are several indicators of working with a quality and reputable third party clinical research organisation. The first one of these is that the organisation in question can offer highly experienced and qualified investigators for the studies that it conducts on behalf of pharmaceutical companies.

For any company seeking out an organisation to carry out clinical trials, this should be top priority as the results will only be as good as the investigators working on each project. Regardless of the organisation that each pharmaceutical company decides to work with, it is essential to check all necessary expert credentials before handing over the project.

In addition to ensuring that the team is fully competent and fully qualified, language is also another major consideration to make. This may seem almost trivial in a world where there are interpreters and translators, but ensuring that communication is fluid, easy and clear is essential to ensure a positive outcome.

This is because the clear details of a project are essential in order to ensure a positive outcome and that guidelines and procedures are followed correctly. In return the results and reports must also be clear and concise for the purpose of being used and analysed by the pharmaceutical company.

When dealing with an overseas clinical research organisation therefore, it is essential to ensure that language is not a barrier. Before deciding to work with any given organisation, each pharmaceutical should carefully vet the language skills of the research body to ensure that clear and accurate communication is possible.

The next thing that those looking to hire a clinical research contractor should be aware of is whether there are ample and well-equipped research facilities on hand. In addition to this, these facilities should also be able to stand up to the particular demands of the pharmaceutical companies.

This might mean that certain equipment is to be used or staff with certain qualifications or skills are to be employed. The more that the company can meet these demands the better, meaning that high quality and useful results will be produced.

Finally, it is important ask what the clinical research organisation does to ensure a high level of participation in its trials, and also how it retains participants. Each country will have higher or lower participation rates, not to mention retention rates.
Some areas – including Latin America – have high sign up and retention rates, as cultural and economic aspects are conducive to this. Other world areas have more positive, more negative, or more mixed results. In all cases, this is something worth considering, and it is important to know what the organisation does to improve both these rates.

These are just a few of the concerns and considerations that need to be made when a company is looking to carry out clinical trials in any corner of the globe. Ranging from the expertise of the staff that will be conducting the research right through to the retention rates of research participants, there are many different factors to consider that can have a huge impact on the results.

12 Jun 2015

The Symptoms of a Failing Business

How do you know your business is failing? Here are some tips to guide you:

No new customers
As the CEO, you should constantly be talking to potential and new customers. If this has not happened, it either means that your company is not competitive enough in the market or your employees (including you, the boss) are not pulling their weight. Either way this is a huge problem and it could mean that your company could fail unless you can find customers in order to continue to generate revenue.

No public exposure
If your community doesn’t know you exist, if you are not listed as a resource in companies in your industry, if your friends and family are not promoting your business to create awareness to draw customers, then your business will be invisible, and it is a sign that something is seriously wrong. In other words, your business should have some exposure, no matter how little to attract your target market.

Repeating mistakes
CEOs and entrepreneurs do not do this on purpose, but if you keep making the same mistakes without realising it, then your company is not doing well. You may think you have solved a problem only to see the exact same outcome time and time again. Whether it is discovered by analysing data or through clients’ responses, this is a red flag. If you haven’t been able to figure out why you are making the same mistakes, it likely means your business is on its last legs.

Piling unpaid bills
A successful company is able to pay its bills on time. This should be priority for a business and if you cannot pay your bills with the ease you did in the past, your business could be in trouble. Although it does not always mean your business is about to fail; however, it may mean that your company is cash strapped with little or no inflow of revenue. This is a serious issue that needs immediate attention as CEO.

Complacency
If you look back on the previous year and realise that you have not changed anything, say introduced an improved product or service, including the time your company was doing well, then your business is probably struggling. Even top companies have to innovate in order to keep moving forward. Complacency is one of the worst things that can happen to a company.

High employee turnover
If your employees are not happy, they will leave, and then you would likely have to spend a lot of time training and interviewing new employees only to have them leave again. It is a vicious cycle and a huge warning sign that your company may be in trouble.

Heavy debt
If you are neck deep in debt, it might be a sign that your business is on its last legs. Some debt is necessary, but when it is excessive, it prevents you from turning a profit, which is the objective of your business. At this point, you should ask: if I didn’t have this line of credit, will my business survive?

No revenue and profits
You have existed for a few years and not generating revenue and profit. Granted that it takes three to seven years on average to become established; however, if after that period, your income is still a flat line (and continues to be so despite innovative interventions through customer feedback to improve on your products and services), it might be time to face the unsavoury fact that your business is failing.

09 Jun 2015

Preventing Business Failures

Over the past couple of weeks, we have looked at the issues of a failing business. Now, let us talk solutions: how do you prevent a business from failing?

Prepare for failure.

Does this sound contradictory in an article on preventing business failures? I think not. Too often, entrepreneurs are so captivated by their ideas that they cannot envision failure. And when it comes, it hits them so hard because they did not expect it. As a result, they are unable to adapt their business planning to the realities of the situation.

Develop a strong business plan

A strong business plan is one that adequately explains the business situation at the time of the business commenced. It articulates how you intend to succeed through your production, marketing, finance, etc., and details what you need to start. It also provides projections on how much you will spend and make over a period of time. Two things to note though: one, a business plan is not static – always review your plan against the realities on ground as your business progresses. Two, always overestimate your spending and underestimate your income. You are more likely to incur overhead costs and experience slow revenue growth than the other way around.

Watch the decisions you make

For every business, but most especially a business in its infancy, you might just be a one bad decision away from going bust. As such, it is important to carefully weigh your options before making decisions, even in times when you need to move fast. In times of confusion, outside counsel will help a great deal.

Cash flow is king

Contrary to belief, a business does not depend on profits as much as cash flow i.e. how fast the money comes in and goes out. If revenue comes in periodically and at a time you are nearly crumbling under the weight of debts, it is not a good thing at all. So keep an eye on those numbers and try to ensure there is a continuous flow of cash through your business.

Move with the trend, but still shape the future

Trends are your friends. If there is a trend in the industry or market that your business can ride on to profit, take advantage of it. However, ensure that tending product or service does not make you deviate from your core focus as a company. At the same time, be innovative enough to shape the future and if possible, start the next trends.

Hire employees slowly, but fire them fast

This is quite self-explanatory. Don’t be in a haste to expand your staff unless you absolutely need it. But once you see that they are not adding value to your team, don’t hesitate to let them go. Remember, your new business can’t handle too many poor decisions.

Build relationships with your employees

Especially for a small business or organisation, your employees are family. As such, treat them like family. Birthday gifts or small office parties are excellent bonding moments; also, be as un-bureaucratic as possible, maintain a flat hierarchy so that they don’t feel stifled and choked.

Value your first customers

Treat them like kings and you will not only enjoy repeat business, but they become unpaid marketers for your business. Keep in mind that it costs about three times as much to find new customers than retain existing ones – so it is also the economical thing to do.

Get a mentor

Unless this is not your first business or you have experience in the industry, there is a lot you will miss. Life is too short to make all the mistakes, so learn from those of others. A mentor will use his or her experience to guide you through and avoid the pitfalls they had.

With all these in mind, it is very possible to avoid joining the statistics of businesses that fail. It is very possible to grow your new business into a thriving, bigger one.

09 Jun 2015

Why Businesses Do Not Sell

It would be nice to live in a world where every business-for-sale was sold at top dollar. While there is no such thing as a perfect business free from all defects, there are a number of problems that can hinder a sale that could be remedied, if given enough time. This article lists ten of the reasons which are often cited as contributing factors in an unsuccessful sale or a completed deal for less than potential value.

Business intermediaries need to be up-front with their seller clients, educating them on the challenges faced, and the likely impact that one or more of these issues will have on completing a successful transaction.

1. UNREALISTIC EXPECTATIONS

a. Valuation/Listing Price:

Arguably, the price a business is listed at is one of the critical elements to a successful sale. An owner’s emotional attachment to their business, coupled with an inexperienced business intermediary’s desire to obtain the listing and please the seller, can be a recipe for disaster. Overpricing a business will deter knowledgeable buyers from establishing communications. Additionally, it will be extremely difficult to defend the valuation when a business has been priced unrealistically. The typical outcome is that the listing will languish in the marketplace and recovery becomes more difficult. Once on the market for months on end at the wrong price, the process in re-pricing and re-listing creates a whole new set of challenges, the least of which is maintaining credibility.

b. Unrealistic Terms and/or Structure

Deal structure, asset allocation and tax management must be addressed proactively and early in the process. Often the Buyer and Seller place all of the focus on the sale price at the expense of the ‘net after-tax results’ of a business transaction. In most cases, a seller could achieve a deal that provides a greater economic benefit when an experienced Tax Attorney/CPA assists with structuring the transaction. In addition to structure there are a number of other issues that could be problematic, including:

  • Seller insists on all cash at closing and is inflexible in negotiating other terms.
  • The buyer’s unwillingness to sign a personal guarantee
  • The lack of consensus on the Asset Allocation
  • Seller insisting on only selling stock (typically with a C-Corp)
  • Inability to negotiate equitable seller financing, an earn-out, or terms for the non-compete

2. PROFESSIONAL ADVISORS

For a successful sale to occur, a business owner must have the right team of advisors in place. An experienced mergers & acquisitions intermediary will play the most critical role – from the business valuation to negotiating the terms, conditions, and price of the sale as well as everything in between (confidential marketing, buyer qualification, etc). Aside from the M&A advisor, a business attorney who specializes in business transactions is critical. Once again, “who specializes in business transactions”. Any professional who has been in the industry for more than a year will be able to point to a transaction that has failed because the lawyer that was chosen did not have the specialized expertise in handling business transactions. Additionally, a competent CPA who is knowledgeable about structuring business transactions will be the third key role. While a business owner’s current legal and tax advisors may have the best of intentions in assisting their client with the business sale, if they are not experienced with mergers and acquisitions it would be highly recommended to evaluate alternatives. In some cases, there is one shot when an offer has been received and it is therefore imperative not to attempt to make a deal that is out of reach and impossible to complete.

3. DECREASING REVENUES/PROFITS

The majority of buyers are seeking profitable businesses with year-over-year increasing revenue and profits. When a business has a less stellar track record with varied results or possibly declining revenue and/or profits, complications with the business sale are likely to occur. Not only will decreasing profits and revenue impact the availability of third party funding but it will have a material impact on the business valuation. While buyers traditionally purchase businesses based on anticipated future performance, they will value the business on its historical earnings with the major focus on the prior 12-36 months. For those businesses which have deteriorating financials, the seller should be able to articulate accurate reasons for the decline. Both the lender and the buyer will need to obtain a realistic understanding of the underperformance to assess the impact it is likely to have on future results. In cases where the seller is confident that the decline was an anomaly and is not likely to repeat itself, structuring a component of the purchase price in the form of an earn-out would probably be necessary. In other circumstances, when there are two or more years of declines, the buyer and lender will question “where is the bottom?” and what is the new normal. In this situation, a decrease in valuation will be inevitable. Cash flow is the driver behind business valuations and business acquisitions. The consistency and quality of revenue and income will be one of the key focal points when assessing an acquisition. It all relates to risk. Those businesses with dependable recurring revenue generated from contractual arrangements will generally be in greater demand than businesses who produce income based on a project based model.

4. INACCURATE OR INCOMPLETE BOOKS

One of the most critical components to a successful business sale is for the business to maintain accurate, detailed, and clean financial statements that match the filed tax returns. Not only will these financial statements be the basis for the business valuation but they will also be the criteria for whether the business will qualify for bank transaction funding. Too often the business is managed as purely a lifestyle business that is focused only on short term owner compensation, without regard to building long term value. In these cases, the owner has taken very liberal personal expenses that may not be able to be added back when deriving the adjusted earnings. Given the importance these documents represent, a business owner should ensure that the books are professionally managed and up to date. Records that are messy, incomplete, out-of-date or containing too many personal expenses will only give prospective buyers and lenders reasons to question the accuracy of the books. Last but not least, businesses that have a ‘cash component’ will need to report 100% of this income for it to be incorporated in the valuation.

5. CUSTOMER CONCENTRATION

Businesses that have a handful of customers that produce a large percentage of the company’s revenues, will probably have customer concentration issues, especially if one client represents greater than 10% of sales. It is important for a business owner to recognize that a business which lacks a broad and diverse base of customers possesses a higher degree of risk for a buyer as the loss of any one of these large clients could have a material impact on the future earnings. As a result, customer concentration will have an effect on the valuation, deal structure, and salability of the business. Vendor and industry concentration can also pose complications when selling a business. Specialization can be a competitive advantage for a business and assist in winning contracts. However, this same narrow industry focus could be a detriment if it is perceived that the business does possess a broad supply chain and ample options to source products and materials.

6. THE OWNER IS THE BUSINESS

It is not uncommon for the owner to play a significant role in the operation and management of the business. This is particularly true with smaller enterprises. Where this situation can present a problem is when the owner is not only the face of the business but also deeply involved with all facets of the company – sales, marketing, operations, management, marketing, and financial. If there are no key employees and there are few written processes and procedures, the business lacks a dependable and repeatable work flow. When it becomes evident that the business cannot operate effectively without the owner’s hands on involvement and personal know-how, it becomes problematic. Of equal concern is the relationship the owner may have with the customers of the business. If the customer does business with the firm largely in part of the relationship with the owner, this situation will create customer retention concerns and possible transition problems when the business is being sold. In summary, buyers want a business that can operate independently from the current business owner.

7. THE OWNER(S) IS AGING AND HAS SLOWED-DOWN

It is not uncommon for a business owner to become complacent after running the company for an extended period of time. Becoming tired and lacking the previous ‘fire in the belly’ has a way of spilling over into the business fundamentals. The number of trade shows that the business participates in decreases, the travel and new customer sales calls that routinely took place on a daily basis in the early years, have been paired down. The investment spending on equipment upgrades, vehicle replacement or marketing programs have been cut back. Innovation has come to a grinding halt and the business is on auto pilot. The financials have luckily held steady but for how long? An owner who has become burnt out almost unavoidably transmits their lack of zeal and drive to their staff and clients in a number of subtle ways. The net result is the company’s performance slowly begins to deteriorate. Unfortunately, this situation can become even more pronounced when the owner finally makes the decision to sell the business and mentally checks out at the worst possible time. Transferring ownership can be viewed by some as a highly emotional process, and the decision to sell at the right time is often ignored until the issue is forced upon the owner (failing health, divorce, disability, etc.) and usually at a fraction of the former valuation.

8. INDUSTRY IS DIMINISHING OR THREATENED

Over the last two centuries there have been a number of industries that have developed and grown significantly. In this same time frame, many new industries have been created while others have become extinct. The future outlook for a given industry will have a direct impact on the valuation and marketability of the business during a sale. Businesses facing obsolescence or mired in a shrinking industry will face an uphill battle when it comes time to transitioning or selling the company. Maintaining a diverse offering of products and services that are relevant to the market, not just today, but also with an eye to the future, will enable a business owner to avoid this situation. Not only will this assist in mitigating the impact from declining sales but also demonstrate to a prospective buyer that the business has a clear path to grow in the future.

9. CHOOSING THE WRONG LENDER

From loan application approval to transaction funding is a process in business transactions that can take six weeks or more, that is with an ‘experienced’ business acquisition financier. Many deals have fallen apart during this time frame because the buyer became aligned with the wrong financial institution. There is nothing worse, for all parties involved, to find out four weeks into the process that either the loan terms previously promised were not correct or worse, that the bank underwriter declined the loan.

In the field of business acquisitions, not all banks/lenders are the same. There are conventional loans, SBA backed loans, and there are lenders that provide cash-flow based financing and others that only provide asset based funding. One bank may turn down a borrower for an SBA 7a loan while another institution will readily accept it. Every lender has its own unique and frequently modified lending criteria. Therefore, buyers need to ensure they are working with the right lender from day one, or valuable time is wasted causing the deal to be compromised, or lost to another, better prepared candidate. Buyers should consult with the business intermediary representing the sale to determine which lenders have reviewed and/or pre-approved the transaction for funding. Obviously, buyers who are prequalified from the start and verify that the bank’s lending criteria conforms to the type of businesses they are evaluating, will be the best positioned for a successful acquisition.

10. COMMERCIAL PROPERTY ISSUES

For some businesses the saying “location, location, location” cannot be more important to the value of the company. Typically, this will pertain to retail businesses. If the physical location is of major importance, the business buyer will seek assurances that they can either purchase the real estate or be able to sign a long term lease. On the flip side, the business could be located in a part of town that has fallen on hard times or could be located on the owner’s personal property, both situations necessitating that the business be relocated. Also, some businesses are not easily relocatable without affecting the current customer base. All of these circumstances add another layer of complexity to the transaction.

Additionally, the type and size of facility can also have a material impact on the sale. If the facility is not large enough to provide the enterprise a sustained growth path, a buyer could become disinterested. Another situation could be the value of the property. If the current owner purchased the land/building a decade or two earlier and the financials or recast do not reflect a current FMV rent/lease payment, valuation problems will occur.

Business transactions involving the sale of commercial real estate can be hampered by the Environmental Site Assessments (ESA’s) – Phase 1 and Phase 2. Property that is contaminated can be very costly to clean up and will have an impact on the closing. When this situation arises, it will be important for the buyer and seller to have a clear understanding of the costs to resolve the issue, which party is responsible, and whether a price offset will be warranted.

Other complicating factors involving commercial real estate include zoning changes that require a property to be brought up to new codes, and clear definition of who bears responsibility and the cost of this process. Last but not least, the agreement by the landlord with either a lease assignment or offering a new lease at comparable rates.

SUMMARY

Most small business owners have spent the majority of their life building their business. It is not uncommon for a business seller to become so emotionally attached to the company that they look past some rather glaring problems that a business intermediary, a lender, or prospective buyer will immediately recognize. It is natural for a seller to want to obtain the highest price possible for their business. There is so much bad information on the web related to multiples and business valuations that this should not come as a surprise. M&A Advisors need to be honest and direct in educating a business seller on the challenges faced in a potential sale, the range for a realistic transaction price, as well as creative terms and structuring options that might be utilized. Being a people pleaser and ignoring any potential problems will only provide the seller with unrealistic expectations. In the arena of business negotiations there are few if any “pleasant surprises”. Dealing with issues up front rather than late in the sales cycle process should be the golden rule.

08 Jun 2015