Today's Business Owner Archives

Merge to Survive - & Thrive - in Tumultuous Times 
By Steve Abdalla

Contributing Writer 

Tough times have arrived for Hawaii businesses, and they're not leaving anytime soon. Honolulu is in a recession. Hilo Hattie and Hawaii Medical Center have filed for bankruptcy, and thousands of other firms are struggling and on the brink. 
 
One of the most successful - and least used - strategies for surviving a recession, even thriving during one, is to merge with a competitor. 
 
Mergers within an industry can enable firms to slash costs in numerous areas, including rent, transportation, purchasing, manufacturing, accounting, human resources, sales and marketing. 
 
Revenues can increase as well, through offering a more complete set of products or services, cross selling and improved pricing power.
 
Non-financial benefits for owners include a strengthened management team, perceived market leadership, injection of new personnel, energy, ideas and an enhanced lifestyle as a partner that can share ownership burdens.
 
Two Honolulu-based Portuguese sausage makers, Rego's Purity Foods Co. and Gouvea's Inc., recently merged to create a stronger combined entity. After more than 50 years of spirited competition, they finally concluded that "it just made sense to merge."
 
During the last downturn, two non profits, the Honolulu Symphony and the Oahu Choral Society, merged in part to generate more than $50,000 in operating cost savings. Ironically, they had split eight years earlier following a labor dispute. 

So why aren't there more mergers? There are substantial challenges that need to be overcome, including:

• Lack of awareness - Most business owners simply never consider the option.
• Lack of knowledge - Most entrepreneurs have no idea how to approach a merger partner, estimate merger synergies or value, negotiate a deal or integrate operations.
• Desire to retain control.
• Distrust and/or hard feelings towards competitors.
• Incompatibilities, e.g. in equipment, technology and culture.
• Difficulty reaching agreement on valuation, ownership and post merger responsibilities.

The potential benefits of a merger vary considerably by industry and specific company. Benefits are greatest in the following situations:

• Certain industries such as manufacturing, distribution, transportation and technology.
• High fixed costs as increased volume reduces per unit costs or excess capacity.
• Limited number of competitors, which enhances price leverage from a consolidation. 
• Significant economies of scale in any important aspect of the business such as purchasing, advertising or even recruiting.
• Specific companies with complementary product/ service offerings, geographic coverage or resources.

Mergers tend not to be particularly beneficial in retail or restaurant industries as the brands and operations are generally too distinct to combine effectively. Businesses that are highly dependent upon the personal skills and reputation of a key principal such as small legal, medical, advertising and other professional practices tend to see little if any merger synergies.
 
Unlike with acquisitions, little or no cash is typically needed, and both owners remain. The firms combine, rather than one buying out the other. Differences in value can be accounted for by varying post merger ownership stakes and/or salaries.
 
Mergers are not without risks. Failed merger negotiations can result in a leak of confidential business secrets, loss of personnel or litigation between the parties. Even if a deal is reached, the companies may have trouble integrating operations, leading to a decline in service and lost customers. Further, the owners may simply not get along. 
 
For a merger to succeed, there must be strong potential operating synergies and compatible owners and company cultures. The parties need to be flexible and willing to seek win/ win agreements.
 
It's critical to engage professional and experienced advisors to facilitate the process and resolve potential disputes. Without an impartial intermediary focused on making the deal happen, merger discussions almost invariably dissolve amid complex and protracted negotiations and an inherent lack of trust. 
 
A decision to merge is one of the most momentous decisions a business owner will ever make.  The potential benefits are extraordinary, but so are the risks. Unfortunately, the economic challenges facing Hawaii businesses are sizeable, and many firms will need to take drastic actions to survive. Procrastinate, and it may be too late. An experienced venture capitalist once said, "it is better to own a piece of something big than 100% of nothing at all."

Generating More Leads 

A Constant Flow will Ensure Maintaining New Business Levels

The constant turnover of customers means that generating new leads is essential to keep a business growing. There are many ways of doing this, depending on the product and customer groups involved; however, the primary purpose is to provide data on potential customers that one can follow up.
           
FAQ

How important is lead generation?
Lead generation is vital to the development of new and continued success of established businesses. Customers can stop buying, or they move to a competitor; therefore, this lost business must be replaced with new customers if sales are to grow. In order to maintain new business levels, sales teams must have a constant flow of leads.
 
What is the best source of new leads?
The best source is the one that produces the highest-quality leads; some publications can produce large numbers of leads, but they could all be poor. A publication, a direct mail program or an event that is precisely targeted is likely to produce the most effective lead source.
 
Are incentives necessary to a lead generation program?
They are not essential, but they may help to encourage people to place inquiries. The incentive should not be too generous, since you may attract poor prospects who are more interested in free gifts than in your products.

MAKING IT HAPPEN
 
Make Direct Response a Priority
To generate leads from your marketing campaigns, include a response mechanism in every communication that makes it easy for prospects to reply. Getting names is a priority, so make sure that your communications are designed to deliver.
 
Make It Easy for Prospects to Respond
To improve response rates, it is essential to make it easy for prospective customers to respond. The most popular mechanism for print media advertisements are:

• Web Site Address
• E-Mail Address
• Toll-Free Number

Use Direct Mail to Target Prospects
Direct mail can be used at a number of stages in a lead generation program. Mailings to lists that have not been qualified should include a response mechanism so that follow-ups can begin.
 
Encourage Web Site Registration
Web site registration provides high levels of information. When customers visit your web site, ask them to register their details. The registration form is completed online and submitted by e-mail. In return, you e-mail them regularly with details of products and services that are of interest to them. Incentives such as free reports or free software can encourage higher levels of registration.
 
Record Exhibition Visitors
Visitor registration should be an integral part of exhibition planning. Set up a process for capturing data on all stand visitors. Set up a database of exhibition contacts, and use it to plan and monitor a contact program after the exhibition.
 
Monitor the Business Press
Many business publications feature news about recent appointments or interviews with leading executives. This type of information can give you names of potentially valuable contacts. The appointments pages can also alert you to changes in personnel at one of your customers or prospect companies.
 
Use Telemarketing
Telemarketing can be used to generate new leads and qualify existing leads. The telemarketing team can call target companies and ask for the names of decision-makers for follow-up. The team can also call people who have made an initial inquiry, in order to qualify their interest and find out how good the prospects are. However, remember that some people may have placed their names on "don't call" lists and that contacting them by making unsolicited phone calls may lead to significant fines. Make sure you are contacting the right people from the outset.
 
Integrate Lead Generation with Other Marketing Activities
Lead generation programs can be improved by integrating the campaign with other marketing activities such as an exhibition, advertising campaign, or a call by a member of the sales force. With integrated campaigns, overall awareness levels among customers and prospects will be far higher. Your lead generation program will have an even greater chance of success.

Keep Refining Your Contact Lists
Many of the contact lists that you have developed from internal or external sources may not match your requirements exactly. To improve coverage, or to make them more precise, you must make a continuous effort to refine them. These are some of the actions you can take to improve the coverage of your lists:

• Make sure that new customer and prospect data are added to the list.
• Include coupons and other reply mechanisms with every form of communication, and add the responses to your lists.
• Encourage the sales force to provide up-to-date customer and prospect information.
• Maintain an active search program in appropriate web sites, magazines and newspapers to identify new prospects for your list.

Seizing the Opportunity Now to Buy a Business

Economic Downturn Means Better Deals

More and more people have decided to become a business owner after being laid off from their employment. Many have determined that to do so gives them greater control over their future, and have gone down the road of acquiring an existing business. At the same time, however, there are a large percentage of these prospective buyers that are mulling over the decision to do so in this current economic recession.
 
Although it's understandable that many aspiring entrepreneurs are holding off until the recession ends because of the higher risk and lower profit margins; the time to buy a business is now.
 
There are four reasons why you need to jump on these opportunities instead of sitting on the sidelines until the rain breaks:

1.) Slow economy means reasonable deals
There are more than a few anxious sellers out there who are willing to divest their businesses at a lower price in this recessive economy due to the indicators that are used to track business valuations.
 
Since many business owners have a strong urgency to sell now and not tomorrow, the deals for would-be buyers are out there. If you are a potential buyer, you are in a better position to make a purchase on a business for sale in this economic climate than when it improves, otherwise you will miss the window of opportunity.
 
2.) Finance through the seller instead of the bank
For most people, having the funds to buy a business is the biggest issue. The solution to this challenge is simple - seller financing.
 
As some of you might know, seller financing is when the seller, rather than a professional lender, assumes responsibility for a percentage of the buyer's investment. Historically, this happens when the buyer cannot secure financing at the asking price of the owner.
 
In this situation, the business owner selling the business can approach this in two ways:

1. He or she can lower the asking price;
2. Work with the buyer and provide financing to overcome a potential deal-breaker.

Nowadays, many business owners will offer seller financing before they even meet a buyer. This means that you can buy a business right now as many are willing to finance the transaction themselves. So why wait until the economy starts to recover?
 
You may find this hard to believe, but you can obtain a better rate from a seller than from a bank. In addition, you have more leeway to negotiate the down payment that works better for you, the loan length, monthly payments and interest rates. Many sellers will accept a discounted balance if you pay off the loan ahead of schedule.

3.) The return of SBA loans
In the last few months, SBA lending has become unprofitable for many lenders, which has led to fewer people being approved that wanted to start up a business.
 
However, the SBA has recently taken several steps to make SBA loans more profitable for banks by eliminating a variety of obstacles to government-backed lending. This will lead to credit becoming increasingly available and willingness from more banks to sit down and discuss the SBA 7(a) loan program that will allow you to buy a business.

4.) The right factors provide the opportunity
Remember that the best entrepreneurs will never wait for perfect market timing so seize the moment now and don't wait. Companies such as Microsoft and Apple started in the midst of a recession during the 1970s.
 
A variety of factors contribute to the reason that businesses that start or are bought in a down economy do better than those that don't:

1. Since buyers of products and services are scrutinizing expenses, this allows market share to go up for grabs; furthermore, suppliers that are hungry for business may offer great deals;
2. With the increasing number of talented individuals available due to company layoffs, now would be a great time to hire a few that maybe available at more reasonable rates.

Once the economy recovers, you will not have these advantages. If you are a buyer, you will have greater business success as conditions improve if you learn how to focus on revenue growth and closely manage expenses.

Highlighted Transactions
and New Engagements

SUCCESSFUL TRANSACTIONS 

Auto Body Repair Franchisor

VR Mergers & Acquisitions of Clearwater, FL, a leader in the sale of privately-held companies, recently facilitated the strategic sale of an Auto Body Repair Center for $3.9 Million.

The transaction, which closed in March 2009, was handled by Larry Lawson, a business intermediary specialist.  

VR is celebrating 30 years as the world's only network of full-time professional business intermediaries.

VR has sold more business in the world than anyone®.

 SUCCESSFUL TRANSACTIONS 

Restaurant/Bar in East Atlanta

VR Mergers & Acquisitions, located in Atlanta/Marietta, GA, the leading business intermediary firm in the area, has recently facilitated the strategic sale of a restaurant/bar for $150,000.

Media Moore Williams, a VR Intermediary, represented the seller throughout the transaction that was completed in March 2009.

VR is celebrating 30 years as the world's only network of full-time professional business intermediaries that addresses the needs of small and mid-sized businesses.

VR has sold more business in the world than anyone®.

NEW ENGAGEMENTS 

Car Wash with Property

VR Mergers & Acquisitions located in Great Neck, NY, announced today it has been engaged by a car wash establishment to assist in facilitating the sale of their business.

This well-established business washes close to 800,000 cars a year.  The current owner refurbished the facility and grounds recently and is in mint condition.  Go to VR Web Site for further details.

VR is celebrating 30 years as the world's only network of full-time professional business intermediaries that addresses the needs of small and mid-sized businesses.

VR has sold more business in the world than anyone®.

NEW ENGAGEMENTS 

Office Furniture and Interiors Manufacturer

VR Business Sales in Lynnwood, WA, specializing in the sales and acquisitions of small and mid-sized businesses, has announced that the company has been retained to sell an office furniture and interiors manufacturer in the Puget Sound area.

All the products manufactured are marketed to wholesalers in a five state area. The company can also produce a variety of custom jobs within a reasonable turnaround time. Click here for further details and contact information. 

Celebrating 30 years as the world's only network of full-time professional intermediaries, VR addresses the needs of small and mid-sized businesses.

VR has sold more business in the world than anyone®.

ADDITIONAL ENGAGEMENTS 

Family Restaurant, Mexico: $12 Million

Plumbing Company, CO: $1.5 Million

Ice Cream Franchise, NC: $695,000

Well-Established Bowling Alley, CT: $449,000

Drug Sampling and Collection, KS: $170,000

CLICK HERE TO ACCESS ALL VR BUSINESSES-FOR-SALE

Now is a Great Time to Become Part of VR!

With baby boomers selling their businesses to retire and frustrated corporate executives and managers looking to buy a business to replace their corporate job, NOW is a great time to become part of VR!

Click here for information 

VR's Newest Office

in Panama City, Panama

2009 Today's Business Owner® Publishing Dates
 
 January 15, 2009
 February 15, 2009
March 15, 2009
April 15, 2009
May 15, 2009
June 15, 2009
July 15, 2009
August 15, 2009
September 15, 2009
October 15, 2009
November 15, 2009
December 15, 2009 

VR Global Headquarters
One East Broward Boulevard
Suite 1500
Fort Lauderdale, FL 33301
Phone (954) 565-1555; Fax (954) 565-6855 
http://www.vrbb.com

Copyright © VR 2009

In This Issue

Merge to Survive - & Thrive

Generating More Leads

Seizing the Opportunity

SUCCESSFUL TRANSACTIONS

NEW ENGAGEMENTS

Ask a VR Intermediary?

Quick Links

VR Web Site

Buyer Alert Program

VR Office Locations

Ask a VR Intermediary?

William Park, 2008 MVI Winner 

VR Mergers & Acquisitions

Artesia, CA

What Ways are there to Raise Business Financing?

Jennifer Hutton, Denver, Colorado 

Dear Jennifer,

There are many methods for when you're trying to raise financing for your business. Remember that whatever process you determine to initiate, you want to project what your cash flow will be. Institutions such as bankers prefer to lend to those that will use that to repay the loan. In addition, lenders want those that have adequate collateral to satisfy the loan if cash flow fails, and whose principles - the entrepreneurs - will commit their personal assets to guarantee.

You can explore various processes for when you are seeking to raise money such as direct or indirect private placements of debt with financial institutions, private placements of equity by individuals, initial public offerings ("IPOs") and direct public offerings ("DPOs").

Direct Private Placement of Debt
It is simple to have financial institutions such as banks, commercial-finance, leasing, and venture-capital companies to direct private placements of debt. You approach the financial establishment with information that it requests such as what's provided in your business plan and details about your history and financial worth.

Indirect Private Placement of Debt
Institutions such as insurance companies only consider financing businesses that are recommended to them by investment bankers and business intermediaries whose judgment they value.

Private Placements of Equity by Individuals
This method of financing normally is done by emerging, high-growth ventures that do not have a long history and are seeking equity.

Initial Public Offerings ("IPO")
These are probably the toughest form of financing and can cost more than $500,000. It is usually high-growth companies that attempt to do this method. Investment bankers usually handle these transactions, and they can do so on an "underwritten" basis.

Direct Public Offering ("DPO")
Aimed at small companies, DPOs have become popular in states that have created so-called Small Corporate Offering Registration Programs. Aimed at small companies, a DPO allows the entrepreneurs to sell stock themselves, rather than through an investment banker. However, you should consult an experienced attorney before proceeding with this course of action.

DETERMINING RISK 

Risk can be influenced by the stage of the venture, the competitive advantage, proprietary technology, the expertise and experience of management and many other factors that can determine whether a venture succeeds or fails.

It is possible for a venture to fail and lenders to get their money back. This is the strategy used by asset-based lenders. Banks want businesses to have sufficient cash flow to be able to repay their loan and interest. They also insist on a secondary source of repayment, whether in the form of collateral that they can liquidate or guarantees from sources who could repay.

Asset-based lenders may lend money to a business even when it does not have cash flow. They rely on their security in the form of collateral, and closely monitor the loan.
 

Below is a list of some financial instruments that are sorted by ascending order of risk:

1.) Senior loans across all assets:

Good for banks because they prefer the least risk.

2.) Senior loans with specific named assets:

Good for vendors of equipment or asset-based lenders who have very specific needs.

3.) Subordinated loans across all assets:

Advantageous for smaller and community development venture capitalists, who often have lower appetite for risk than the venture capital limited partnerships.

4.) Unsecured loans:

For those who trust you such as friends and family that are not seeking a high return.

5.) Preferred stock:

For sophisticated investors who know that it adds equity to the venture while giving them the control they want.

6.) Common stock:

Friends, family and relatively unsophisticated angels who invest small amounts of money in high risk ventures.