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Crafting a Transition Strategy

4/18/2013

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Last weekend while I was searching for a new pattern to knit a dishcloth, I came across an interesting news.  Before you thought you have landed on a crafting blog by mistake, allow me to share with you how knitting and yarn fit into 'how to sell a business' blog.  As it turns out, the great American yarn company, Elmore-Pisgah in Old Fort, North Carolina has closed down.  It has been around since the 1920s and it is the maker of the beloved 100% cotton yarn, Peaches and Cream.  According to a few bloggers, its Canadian rival, Lily Sugar'n Cream has bought the American company and shut it down.  The crafting community was outraged and sadden by the lost of a great American company, lost of more American manufacturing jobs to an 'evil' Canadian rival whose product was apparently inferior.  I suspect that the true story is probably far from what was circulated on the internet.  Perhaps owner of Elmore-Pisgah had tried to sell the business to another American buyer but at the end the best buyer was its Canadian rival.  The Canadian company however appears to have done little to communicate to its customers what has transpired with the acquisition and perhaps missed an opportunity to retain some of the loyal fans of Peaches and Cream.

The transition of a business from its current owner to a new owner is an important step that need to be approached with careful considerations.  Typically the larger the business, the more critical a well thought out transition strategy should be.  Some of the proven strategy include:

1.  Identify key employees early in the process and inform them of the potential and reason for sale. 

2.  A carefully crafted and well timed co-announcement to employees, clients and vendors.  Setting the communication record that business will be as usual and perhaps even better with the transition to new owner.

3.  Exiting owner remain active in the business for a period of time, showing strong support and confidence to the new owner.  

4.  Minimize changes as much as possible for a period of time.  If change is unavoidable, clearly explain the timeline, the impact and the reasons.

With careful planing and execution, most businesses will transition smoothly to a new owner.

Submitted by Siew Cheng


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Fraudulent Business Buyer Alert

4/15/2013

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Once in a while, we receive emails that are obvious scams.  Most of them are some variation of the Nigerian scam with high ranking government official wanting to move money out of the country via a business purchase for their family.  It is fairly obvious and we usually just ignore the email.  Last month, however, we receive an email from a prospective that is operating a different scam which we have not yet encountered.  Below is the scam alert we sent to all members of IBBA and IBBA Canada and we thought we will share it with the public at large as well.

We received an email from Mr. Dave Jamie last month interested in purchasing a liquor store in Northern Alberta we have listed for sale.  Dave has an African/Jamaican accent and claimed that he needed to buy a business in Canada.  When asked why he wants to buy a business in Canada or how he plans to manage the business etc, he never directly answer the questions but simply said that he is a business man doing a lot of business in China buying and selling household items and knows what he needs to do to make money.  He would not give the name of his company nor companies that he does business with.  He has no questions about the business he wants to buy and intends to pay full price for it which immediately raise a red flag.  His primary interest is to send us a cheque of $200,000 to "secure" the business and to fill whatever forms/contracts we need him to fill out.  We told him that in order to accept his cheque, we will need to have an offer in place and when we send him a list of questions needed to prepare an offer, he does not appear to understand half of them but he keep insisting on wanting to send us a cheque to buy the business.  After several rounds of communications, we learnt that this is a bad cheque scam that typically target law firms.  It appears that the fraudsters are now targeting Business Brokers.  Mr. Dave Jamie made a crucial error by calling our office looking for Pino.  It turns out that Pino is a friend and fellow business broker at Pacific Business Brokers.  After comparing notes with Pino, we come to the conclusion that this is the same guy using a different name.  When he contacted Pino, he was pretending to be a Japanese (with Jamaican accent!!) using the following credential:

Name: Kong Kim (the Japanese name related to this cheque fraud http://avoidaclaim.com/2011/real-estate-bad-deposit-cheque-scam-by-shiukmoda-joji/comment-page-1/)
Email: kong.kim@execs.com
Phone: 239.234.4377

He used the following information when contacting VR.
Name of Sender: dave jamie
Email of Sender:  davejamie2013@hotmail.com
Telephone: 3478718829
Address: 3030 Verde Street, Bakersfield, CA, United States 

We have contacted hotmail to report his violation of Microsoft code of conducts and Microsoft appears to have shut down his hotmail account.  He then email us using a newly created gmail account 
davejamie2013@gmail.com.  We have contacted Google to report him and haven't receive any email since, although he did call a few times.

This fraudster is obviously not very sophisticated and as such even though we have no idea at first that it is a scam, it smells fishy from the start.  However, it is possible that people like him will become more sophisticated over time and it will be harder to detect them in the future.

What can you do to prevent being a victim of a scam like this?  Below is a simple and effective strategy that is similar to what was recommended for detecting the Romance Scam.


1.  Ask for a copy of their passport or driver's ID or any picture ID.
2.  Then find an opportunity soon after receiving the photo ID to ask for another picture with very specific requirement, such as in front of a certain building close to where he or she claims to live, or wearing a specific color shirt etc.  Alternatively, you can request for an online video conference via Skype or Google Chat etc.


It is unlikely that fraudster will send his or her personal ID in step 1 and as such unlikely to be able to fullfil the second request.  Any prospective buyer who cannot fullfil both of those requests are unlikely to be a real buyer.


Submitted by Siew Cheng
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Business Succession Planning Presentation with td wealth

4/12/2013

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VR Business Sales will be presenting an educational seminar for Business Owners with TD Wealth. 
This educational seminar is specially tailored for business owners and will be presented by members of the TD Wealth and VR Business Sales. 


"The purpose of this seminar is to educate business owners who are thinking of selling their business in the next 2 - 3 years on the various stages of the process from preparing for the sale to exiting the business to finally realizing the financial success" says Jey Arul, President of VR Business Sales. 

We invite you to join us for this event but clicking on the brochure below and following the instructions to RSVP. 

The event will be held on May 1 2013 at The Derrick Golf Club from 6:00 PM to 8:00 PM. For additional information click the following Business Succession Planning - May 1, 2013 link.

To RSVP please call VR Business Sales at 780-469-4769 or email at info@vralta.com 
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What are the costs of buying a business?

4/9/2013

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One of the most important considerations of any business activity is cost and the cost to buy a business is no exception.  While I have no doubt most people we deal with at VR understand the importance of this simple financial measure we find a number of our prospective (typically first-time) buyers do not have a clear idea of all of the necessary costs involved in buying a business.

With that in mind we’ve created the following worksheet to help you:  

cash_requirements_worksheet.pdf
File Size: 203 kb
File Type: pdf
Download File

Many of these costs are self explanatory but this sheet should provide a complete picture of the necessary costs when buying a business.  A quick overview:

Initial Cash is the total cash tendered by the purchaser.  It includes cash funding provided by the purchaser as well as bank financing provided to the purchaser and encompasses inventory not included in the sale price.

Existing Encumberances are any liabilities the new owner is assuming from the old.  With the exception of payments on capital equipment there is typically very little included here.

The availability of Seller Financing has steadily become more important in recent years and can have a drastic effect on the saleability of a business as well as its final selling price.  (See Jey’s article here for more detail.)

Closing Costs are miscellaneous costs involved in closing a deal.  The skills of several different professionals factor importantly into this stage of the process and ensure that the interests of both parties are protected and observed.

Startup Costs include licensing fees, and other support activities/costs the new owner must cover in order to complete the transfer of operations to his or herself and ensure the business continues to operate.

If you are a prospective buyer or have any further questions regarding this worksheet or the selling process in general please do not hesitate to contact us at the VR Edmonton Office and one of our friendly, knowledgeable staff will be happy to assist you.

Submitted by Kenji Miki
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What you should know when selling your business

4/7/2013

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What can Business Brokers Do – And, What They Can’t Do?

Business brokers are the professionals who will facilitate the successful sale of your business. It is important that you understand just what professional business brokers can do – as well as what they can’t. As your business brokers, we can help you decide how to price your business and how to structure the sale so it makes sense for everyone – you and the buyer. We can find the right buyer for your business, work with you and the buyer in negotiating, and every step of the way until the transaction is successfully completed. We will also help the buyer in all the details of the business buying process.

A business broker is not, however, a magician who can sell an overpriced business. Most businesses are salable if priced and structured properly. You should understand that only the marketplace can determine what a business will sell for. The amount of the down payment you are willing to accept, along with the terms of the seller financing, can greatly influence not only the ultimate selling price, but whether the business sells or not.

How Long Does It Take to Sell My Business?

It generally takes, on average, between four to six months to sell most businesses. Keep in mind that an average is just that. Some businesses will take longer to sell, while others will sell in a shorter period of time. The sooner we have all the information needed to begin the marketing process, the shorter the time period should be. It is also important that the business be priced properly right from the start. Some sellers, operating under the premise that they can always come down in price, overprice the business. This theory often “backfires,” because buyers will often refuse to look at an overpriced business.

It has been shown that the amount of the down payment may be the key ingredient to a quick sale. The lower the down payment, generally 40 percent of the asking price or less, the shorter the time it usually takes to a successful sale. A reasonable down payment also tells a potential buyer that the seller has confidence in the business’s ability to make the payments.

Why Is Seller Financing So Important to the Sale of My Business?

Surveys have shown that sellers who ask for all cash receive on average only 70 percent of their asking price, while sellers who accept terms receive on average of 86 percent of their asking price. That’s a difference of 16 percent! In many cases, businesses that are listed for all cash just don’t sell. With reasonable terms, however, the chances of selling increase dramatically, and the time period from listing to sale greatly decreases. Most sellers are unaware of how much interest they can receive by financing the sale of their business. In some cases, it can greatly increase the amount received. And, again, it tells the buyer that the seller has enough confidence that the business can, indeed, pay for itself.

What Happens When There Is A Buyer for My Business?

When a buyer is sufficiently interested in your business, we will help in the preparation of an offer or proposal. This offer or proposal may have one or more contingencies. Usually they concern a detailed review of your financial records and may also include a review of your lease agreements, franchise agreement ( if there is one), or other pertinent details of the business. The buyer’s proposal will be presented to you for your consideration. You may accept the terms of the offer or you may make a counterproposal. You should understand, however, that if you do not accept the buyer’s proposal, the buyer can withdraw it at any time.

We will submit all offers to you for your consideration. At first review, you may not be pleased with a particular offer; however, it is important to look at it carefully. It may be lacking in some areas, but it might also have some pluses to seriously consider.  There is an old adage that says, “The first offer is generally the best one the seller will receive.” This does not mean that you should accept the first, or any, offer – just that all offers should be looked at carefully.

When you and the buyer are in agreement, we will work with both of you to satisfy and remove the contingencies in the offer. It is important that you cooperate fully in this process. You don’t want the buyer to think that you are hiding anything. The buyer may, at this point, bring in outside advisors to help him review the information. When all the conditions have been met, final papers will be drawn and signed. Once the transaction has been completed, money will be distributed, and the new owner will take possession of the business. As your business broker professional, we will work with you throughout the entire sales process.

What Can I Do to Help Sell My Business?

You can cooperate fully with us and any other professionals that you are using. A buyer will want up-to-date financial information. If you use accountants, you can work with them on making current information available. If you are using an attorney, make sure he is familiar with the business closing process and the laws of business sales in Alberta. You might also ask if his schedule will allow him to participate in the closing on very short notice. If you and the buyer want to close the sale quickly – usually within a few weeks, unless there are licenses and/ or permits required that might delay things – you don’t want to wait until the attorney can make the time to prepare the documents or attend the closing. Time is of the essence in any business sale transaction. The failure to close on schedule permits the buyer to reconsider or make changes in the original proposal.

And, finally, your team of advisors must all be working towards the common goal of selling your business for the best price and terms available in the marketplace, and closing the sale as quickly as possible! Remember that, as your professional business broker, we are on your side. Only by your being as cooperative as possible with us, can we best handle your business interests.


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Written by Alexandra Ciungan.
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  • Home
  • Resources
    • Business Brokers
    • Time to Sell
    • Seller Financing
    • Selling My Business
    • Buyer for My Business
    • White Papers
    • VR 5 Step Process
    • Complete Guide to Selling Your Business
  • Contact Us