Representations and Warranties Impact Business Sales The term ‘representations and warranties’ (also known as reps and warranties) refers to facts and assurances given to a buyer by the seller of a business as a part of the purchase agreement. Reps are statements of facts about the present and past condition of a business. An example … Read more
Roll Over for Business Start-Ups (ROBS) Some buyers of businesses obtain funding by tapping into their retirement savings from an eligible account (such as a 401K) without incurring taxes or early withdraw penalties. This strategy is called ‘Roll Over for Business Start-Ups’ (ROBS) and is recognized by the Internal Revenue Service (IRS) as an “arrangement … Read more
What is Return on Investment? Return on Investment (ROI) is a performance measure used to assess the profitability of an investment. In the context of business sales, ROI is a useful metric which gauges the percentage return that a buyer of a business expects to receive on the annual profits of a business compared to … Read more
Serious Buyers Have Realistic Expectations When purchasing a business, a serious buyer should have a well thought out set of realistic expectations. The expectations should be based on the buyer’s financial qualifications, knowledge of a specific industry or willingness to learn about a specific industry, and to what extent they are able and willing to … Read more
Training Period Common in Business Sales As a part of the vast majority of small business sales, the seller will agree to train the buyer (for free) after the closing for a set period of time. The seller may train the buyer on any and all aspects of a business including the management of employees, … Read more
Business Valuations Not Static Business values are not static and change over time based on financial performance, risk, and market conditions. The value of privately owned businesses are generally illiquid, or not easily converted into cash. This contrasts with the value of other asset classes such as publicly traded stocks or bonds which are liquid … Read more
What Is Recurring Revenue? Recurring revenue consists of stable, predictable, and reliable revenue that is expected to continue with a high degree of certainty for the foreseeable future. This contrasts with ‘one-off sales’ which is a revenue stream from unpredictable one-time events with less degree of reliability to recur in the future. There are degrees … Read more
Business Valuations Enhanced in Florida The main driver of business valuations is the future cash flow the buyer may reasonably expect to derive from the business after the sale. If the future cash flow from the business is heavily taxed, threatened by regulation, or resides in an unfavorable demographic environment then business valuations ultimately suffer. … Read more
What is Formal Due Diligence? Formal due diligence is a contingency of a business deal which allows the buyer to thoroughly investigate a business to its satisfaction prior to closing. The formal due diligence process should only occur after a deal is ‘under contract’ whereby there is a written agreement in place (either a Letter … Read more
What is ‘Work in Progress’? The term ‘Work in Progress’ (WIP) in the context of business sales generally refers to ongoing jobs or projects that have been started by a business but have yet to be completed. In manufacturing industries, ‘Work in Progress’ refers to partially finished goods awaiting completion. ‘Work in Progress’ is considered … Read more