Considerations When Buying an Existing Business – Useful acquisition tips for any industry

There are two main ways to achieve business growth: by increasing your sales and revenue, which is sometimes referred to as organic growth, or by acquiring another business. During challenging economic times, when organic growth may be more difficult, business acquisition is often an attractive growth strategy. Buying another business may enable you to expand your geographic footprint, acquire a competitor’s customers, or add new products and services that complement your own.

According to Lisa Aldisert, a New York City-based management consultant who specializes in small-business issues, the decision to acquire another business should be the result of a disciplined strategic planning process and long-term vision for your business: “Buying another company should never be a strategy just to get big faster but rather should be part of a strategic growth strategy that has been carefully thought through and planned.”

Types of acquisitions

There are two main types of business acquisitions: vertical and horizontal. A vertical acquisition involves buying a business that’s above or below you in the supply chain. A common example is a manufacturer buying a raw materials supplier so it can source materials itself and boost its profits. A horizontal acquisition, meanwhile, involves buying a similar company (often a competitor) to expand territory or market share.

As you begin your search for another business to acquire, you may want to retain the services of a business broker, especially if potential acquisition targets are limited and less than obvious. Most business brokers focus on particular industries (such as manufacturing, distribution, publishing or retail), so look for a broker that specializes in your field.

As you start to narrow down your list of acquisition candidates, try to identify potential synergies between them and your business. Cost savings and financials are two obvious synergies, but Aldisert also stresses the importance of cultural synergies: “Is the new business going to be culturally compatible with your business? All kinds of problems can result if not. As bad as culture clashes are at big corporations, they can be even worse for small businesses.”

Once you’ve identified a serious acquisition candidate, you should obtain a professional business valuation to determine a starting point for negotiations with the seller. While the seller has probably had his or her own valuation performed, you should hire your own expert to perform an independent valuation on your behalf.

Keep in mind that when buying another business, what you’re really buying is a future stream of revenue and earnings. Therefore, your projected income and profits must be realized over the long term for the merger to be considered a financial success. This makes performing thorough due diligence on potential acquisition candidates critical – before you move into serious negotiations to buy the business.

In particular, you must thoroughly critique the company’s financials to confirm that statements of financial fact communicated by the seller are, indeed, true. If not, your payback period for the acquisition may be extended and your return on investment (ROI) reduced.

Your acquisition team

It’s also important to assemble a strong business acquisition team to help you through the process. In addition to a business broker, this should include an attorney and a CPA who are experienced in business acquisitions and valuations. Not only will they provide assistance with legal, financial and other details, but these outside experts will look at a deal objectively and help you determine whether or not it makes sense from every angle: strategic, financial, cultural and otherwise.

Finally, Aldisert stresses the need to clearly define what role (if any) the former owner of the acquired company will play after the acquisition. “If it’s a merger in the traditional sense, the previous owner may want to stay on in some capacity, so you need to clearly define everyone’s roles,” she says.

Buying an existing business is a major decision, so stop by or give us a call. We can help you evaluate your finances and plan for any type of business expansion you have in mind.

The Cash Flow Conundrum

Why budgeting cash flow is critical to business success.

 

Your company’s cash flow is the lifeblood of your business. If managed successfully, it can help you overcome business downturns and capitalize on opportunities for growth. Yet why is it that so many business owners don’t take the time to manage their cash flow until they experience cash flow problems?

 

Though there are certainly many time-consuming tasks involved with running a business, managing cash flow doesn’t have to be one of them – that is, if you have a good system in place and stick to a cash flow budget. Here are a few simple ways to make that happen: 

• Understand the importance of cash flow. Many business owners are so involved with managing the day-to-day tasks of running their businesses that they forget how important cash flow is to their stability. The secret of cash flow management is simple: you need to have money on hand to cover expenses, day in and day out. Poor cash flow can result in loss of discounts to your business or even bankruptcy, while well-managed cash flow can allow you to invest excess funds and build a nest egg to grow your business. 
• Set a cash flow target. The amount of money you need to cover expenses will depend on several factors, including your sales, expenses and the seasonality of your business. It’s critical that you take some time each month to project expenses and potential sales. 
• Collect your receivables as quickly as possible. The most fundamental part of cash flow is collecting money owed to you. As such, you will need a system in place to ensure that your billing and collections processes are operating efficiently. Some steps you can take to do so include: 
  • Getting customers to pay you sooner by offering discounts
  • Requiring up-front deposits
  • Accepting electronic payments
  • Utilizing cash management services that process your receivables faster
  • Taking advantage of technology and services such as remote deposit capture, which allows you to deposit checks from your office using a scanner 
• Manage seasonal cash flow.If you have a business with seasonal income, you may need to apply for a line of credit to help you augment cash flow during slower periods. This working capital will allow you to pay your bills in the off-season. Because it’s a line of credit, you can borrow and pay back your line on an ongoing basis without having to apply for a loan every time you are short on cash. 
• Monitor your cash flow throughout the day.Knowledge truly is power. Services like online, mobile and telephone banking make it easy for you to set alerts and to determine what’s happening in your account on a day-to-day basis. 
• Generate financial statements. One of the biggest mistakes businesses make is not running financial statements such as balance sheets and profit and loss statements to determine what’s happening with their cash flow. If you do so on a regular basis, you’ll be able to identify where you need to increase income and to decrease expense, before it’s too late. 
• Invest excess funds. If you have an excess of cash flow, it’s a good idea to put excess funds to work for you with services such as sweep accounts that allow you to set a target balance in your business checking account, automatically invest your excess cash in overnight investment vehicles and automatically return funds to the account if your balance falls below the target. 

As a financial institution that’s committed to business, we can help you manage and monitor your cash flow more efficiently. To discuss your specific needs, stop by your nearest branch or call us. You’ll be glad you did.

Thinking About Opening the Door to a New Home?

Here are some steps to take first.

So you’ve made the decision to buy a home – congratulations! This can be one of the most important and exciting decisions you’ll ever make. But the decision to buy a home is just one in a series of choices you’ll have to make throughout the process of getting the home you want. So where should you begin?

Get prequalified.
The first decision you’ll have to make is how much you can afford. An easy way to do that is to prequalify for a loan. When you prequalify, you’ll learn how much you can qualify to borrow for a home. That way, you won’t waste time looking at houses that are outside your price range. To prequalify you, we will look at your income and your credit history and give you a conditional approval that will tell you and prospective sellers how much you are able to borrow. A pre-approval offers another great benefit – it shows sellers that you are a serious and qualified buyer, giving you a powerful negotiating advantage.
 
Choose a real estate professional.
Before you begin looking at homes, you’ll need to work with a real estate professional. You can begin by asking for referrals from friends or family members. Your real estate professional should be familiar with the area you’re considering. He or she can help you make other important decisions, including the style of house, number of rooms, etc., and can supply information about the neighborhoods you are considering, such as school districts and local property taxes.

Coming up with the down payment.
Most mortgages require you to come up with a down payment. Consider your savings and determine how much you will be able to put toward the down payment. Here are some suggestions for managing the down payment:

• Ask your North Shore Bank mortgage expert about FHA, VA, and other mortgages that offer down payments as low as 2%, 4%, or 0%
• Obtain gift funds from a family member
• Start an automatic savings plan – arrange to have funds automatically transferred to a savings account each month 

Understand the types of loans available to you.
You’ll need to consider the type of mortgage you want. Talk with your North Shore Bank mortgage professional who can to help you decide on the mortgage that best meets your goals and budget. The types of mortgages include the following:

• Adjustable-rate mortgages (ARMs). In general, if you plan to live in your home for only a few years or expect your income to rise, an adjustable-rate mortgage (ARM) is ideal. ARMs offer lower fixed interest rates initially, which then may go up or down during the adjustment period, depending on rate conditions.
• Fixed-rate mortgages. If you plan to stay in your home for several years and prefer the predictability of fixed principal and interest payments, a fixed-rate mortgage is a smart choice.
• First-time home buyer programs. If you’ve never owned a home, you may be able to qualify for a first-time home buyer program. These programs generally offer lower down payment requirements and reduced closing costs.
• FHA and other types of alternative mortgages. Depending on your income, you also may be able to qualify for these more affordable mortgages, which offer flexible underwriting requirements and reduced down payments and closing costs.
• Construction loans. If you plan to build a new home, construction loans allow you to combine the construction and permanent financing in one mortgage. 

Saving for emergency expenses
Owning a home is a big financial responsibility, which is why you’ll want to have cash reserves to protect you from unexpected repair or maintenance expenses. It’s a good idea to set up a savings account to set aside funds. The better prepared you are, the better you’ll sleep at night in your new home.

Growing Your Small Business?

How your financial institution can help.

If you own a business and you’re experiencing the growing pains that accompany any venture, you’re probably wondering how to get to that next level. Whether you’re on the verge of hiring employees, facing the need to move to a bigger space or at the point where you require an investment in equipment, your financial institution can help you in your decision-making process. You have many options available to you, which in turn can provide you with the opportunities to grow. Since growth usually requires money, you need to consider the different options you have for getting the capital you need.

Owning a business is your business

Lots of people go into business because they have a passion for what they do, whether it’s baking, painting cars or building decks. They soon realize that running a business is a different pursuit altogether and requires a completely different set of skills. One of those skills is money management: a careful eye on expenditures, the ability to cut costs without causing the product or service to suffer, and the knowledge to invest when it makes sense.

 

 

 

Securing a first-time loan
A small-business loan can provide the capital required to push your business into its next phase. Banks often cite increased risk as the main reason small-business loan applications are rejected, so starting the process by formulating a rock-solid business plan is key. Your own personal credit history is a major part of the process as well.Adding to an existing loan
If you already have a small-business loan, you may be able to add to it. The likelihood of adding to that loan will depend on outstanding balance, the amount of time left on the loan and your payment history. If you are very close to paying off an existing loan, you may not have any trouble adding to it. If you still have a fairly large outstanding balance, however, or if the payments are already quite substantial, you may want to explore other options.Entering into a partnership or combining businesses

There are always opportunities to partner with another company that provides a similar yet sufficiently different product than your business does. For example, if your landscaping business focuses on grass cutting and leaf removal, and another local business is more focused on landscape design, you both may decide that your businesses complement each other. Entering into a partnership means that the new partner will bring additional business, or even capital, with him or her. Either of these circumstances may provide you with opportunities to grow your business. Your financial institution may be able to help you integrate your finances under a single entity.

 

Capital investments

Knowing when to make capital investments for equipment or space is a significant part of running a small business. It’s the art of spending money that you’re confident can make money in return. Many businesses are at the stage where they can invest in new equipment, but others are wisely on the lookout for good deals in used equipment.

 

Similarly, as a business owner, you may be at the point where you require a larger or more visible location. It takes careful consideration to determine if that investment will pay dividends in the future and how long it may take to recoup such an investment.

 

Your financial institution can be a great source of information in determining whether such an investment is justified. They can also provide you with contact information for any trade groups that might be able to help. For instance, the American Bookseller’s Association provides an incredible wealth of information for booksellers, including the ABACUS study that tracks average growth margins, operating expenses and net profits, along with a full range of support services for small bookstores.

 

If you see the need to grow your business, start gathering income records, profit and loss statements, investment information, and any other financial information you think you may need.Not only will doing this give you a clear picture of where exactly your business does stand, but this is the information you will present to your lender if you are considering any of the loan options mentioned earlier in this article. Your financial institution will need this information to determine how much you may be eligible for and to help you with loan terms and other things.Once you have this information, we urge you to contact us. We will let you know if any other information might be required, and we can start you on your way to growing your business.

 

Visit an office or biz.northshorebank.com to get started.  We look forward

 

Visit an office or biz.northshorebank.com to get started. We look forward to learning more about you and your business’ specific needs and offering solutions.

And the Winner Is…

Choosing the right financial institution for your business

Hiring quality employees. Choosing reliable suppliers. Pricing products or services. There are many decisions involved with starting and running a successful small business. One of the most critical involves choosing the right financial institution. A good financial institution can not only help launch a new business off the ground, but can also pave the way for future growth and success.
 
Today, you have no shortage of financial institution options. To determine the one that best fits your needs, you’ll want to ask some key questions. Questions like … 
 
Is the financial institution financially sound?
One of the most important qualities to look for in your financial institution is financial strength and stability. Determine whether the financial institution is well capitalized. That means that its investments and cash holdings are sound, which indicates that the financial institution is not in jeopardy. You’ll also want your financial institution to have liquidity, which indicates that it has the ability to meet its financial obligations as they come due. Before choosing the financial institution, look through the annual report to learn more about the financials. 
 
Is the financial institution committed to small business?
One way to answer this question is to determine whether the financial institution has a dedicated small business banking team. Your business banker is critical to the success of your business. Having an experienced business banker working with you is like having a trusted advisor who can help you anticipate and meet your business challenges. 
 
Is the financial institution an SBA lender?
One of the biggest challenges business owners face today is securing capital to manage cash flow and growth. To help small businesses establish credit, the SBA offers government-guaranteed loan programs, making it easier for businesses without an established credit history to obtain credit. When evaluating a business lender, be sure to ask if it offers SBA or other government-guarantee. 
 
Does the financial institution offer a breadth of business services?
Business owners have very unique needs when it comes to managing cash flow. Thats why its critical that you find a financial institution that offers a breadth of business services. Some of the services to consider include:
 
- Business credit and/or debit cards to track expenses
- Merchant services to accept debit and credit card payments
- Cash management services to help you expedite collections, disburse funds more
  efficiently, and manage your cash position more easily 
 
What is the fee structure?
Account fees can vary considerably from financial institution to financial institution, so you’ll want to carefully compare fee structures. When comparing accounts, be sure to look closely at:
 
- Minimum balance requirements
- Per item fees
- Monthly maintenance fees
- Coin and currency fees
- Overdraft fees
 
Your choice of a financial institution is vital to the success of your business. So be sure to ask us these questions. When you do, you’ll discover how North Shore Bank is a strong, secure, and local bank that understands the current business environment, and the unique needs that surround it.
 
With us on your team, you’ll have someone you can count on to help build your business. We invite you to meet with a dedicated and experienced Business Banker near you. Visit an office  or biz.northshorebank.com to get started.
 
We welcome your questions and the opportunity to learn more about you and your business’ specific needs. In the long run, you’ll be glad you did your homework.