A partnership agreement is a legal document that provides an outline of how a business will be run. This agreement will often be used by small for-profit businesses when two or more people are involved. It’s an essential document to have, especially in the case when a dispute arises between partners. Even if you have gone into business with a friend or relative, you should have this document in place to make sure everyone is protected. Let’s take a look at some of the key elements that should be in this document.
It goes without saying that your partnership agreement should include the basics, such as the name of the business and the names of key parties involved. You’ll also want to outline the goals of your partnership and how long it will last.
Rules and Responsibilities
When you create your partnership agreement, you’ll want to make sure it offers a lot of clarity on different points with an eye to everyone’s responsibilities. Think through what concerns or disagreements could possibly arise and then outline how you would solve them.
You’ll want to cover everything involving finances in your agreement. This should include key points on income and how it will be distributed. You will also want to clearly outline the ownership interests of each partner involved. Also be sure that the agreement includes the accounting obligations of the partners, and how you’ll handle salaries, vacation, sick leave, etc. Also think about the funds that will be necessary to operate the business. Who will be contributing these funds?
Partners and Staff
The partnership agreement should also cover points involving the work itself. Who is in charge of managing your staff? What kind of authority role does each partner have? What if you decide to bring in a new partner? The agreement should discuss the procedure for adding people to your partnership and what that entails.
Issues Involving Key Decisions
Another important issue to explore and detail in the agreement relates to decision making. How will your company make its business decisions? What will occur if a conflict cannot be resolved? Will you go to court or take another route? What if the partnership was terminated? What would the terms and conditions of your termination be?
When your partnership agreement is under your belt, it should empower you to feel confident in the core structure of your business and its ability to function smoothly.
Obviously, you’ll want to avoid the DIY approach and instead work with an experienced attorney. While it might take more time and money to do so, you’ll be glad that you hired a professional if and when you run into conflicts down the line. Your business broker or M&A advisor should be able to recommend a lawyer who has experience crafting partnership agreements.
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As a business owner, your natural inclination is likely to be considering the strengths of your business and how to perform even better in the future. However, the truth is that sitting back and thinking about your flaws can actually benefit you in the long run. When you have a full understanding of where you are lacking, it will empower you to make the best strategic decisions for the future. These changes, in turn, will help you receive top dollar when you go to sell your business.
Here are 4 areas you should be evaluating:
1. Your Products
How diverse are your products? If you rely upon the sale of just one product, that puts your business in jeopardy. You should be thinking about additional products you could add. This will also open you up to new opportunities for customers and revenue.
2. Your Workforce
There has been much publicity about the current trends in businesses struggling to find staff. Further, there are a variety of trades, such as tool and die, where there is a shortage of skilled workers to begin with. However, your staff members are the core of your business, and represent its wellness and ability to thrive in the future.
3. Your Industry
You should always be on the lookout for trends that could negatively impact your business. Sometimes things are simply out of your control, and you might find that your entire industry is in decline. When this occurs, be sure to think about new directions you can take. If you sit back and just wait for things to change, the value of your business could slip away before your eyes.
4. Your Customers
If you only have one or two core customers, that will typically lower the value of your business. Any potential buyer will quickly realize that the health and stability of your business is somewhat fragile. While you may feel that you don’t currently have the time and resources to obtain new customers and clients, doing so will serve you tremendously when it’s time to sell.
When you work with a business broker or M&A advisor, he or she will help you to evaluate your company and look for weaknesses. However, oftentimes it’s challenging or even impossible to turn the tides when you are under the gun to sell right away. That’s why so many business owners decide to work with a brokerage professional years before they actually plan to sell. This enables them to correct any weaknesses years in advance and be fully prepared to present their business in the best light possible.
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BizBuySell has issued their latest insight report, which summarizes market growth and trends from last year. In this report, they have several interesting areas to report including a summary of how lower sales prices and rate hikes impacted the value of businesses in recent months. The report can be found at https://www.bizbuysell.com/insight-report/#reportArchive.
Overall Trends in 2022
Buyers currently appear to have some leverage when it comes to the prices of businesses on the market. When comparing 2022 with 2021, we see a 4.7% increase in closed transactions. Comparing it to the year prior, there is a 19% gain. Obviously, 2020 sales were negatively impacted by COVID.
While sales grew substantially in the first half of 2022, there was a decrease in momentum in the second half of the year due to inflation and interest rate increases.
The number of transactions recorded by BizBuySell.com in 2022 are actually fairly comparable to 2021, with numbers of 9054 and 8647, respectively. While the transactions raised 27% and then 14% in the first and second quarters, transactions then lagged in the second half, dropping by 2% and then 12.7%.
Trends Among Business Owners
BizBuySell’s surveys showed that the majority of owners are concerned about rate hikes and inflation. In fact, 53% say that the rate hikes are having a negative impact on them. They also reported concerns about rising SBA loan rates, as many business owners utilize their lines of credit. In addition to that aspect, there are still supply chain issues that are negatively impacting businesses.
The main takeaways from 2022 seem to be a steady but slow progression in growth. Moving into 2023, interest rate hikes and inflation seem to be on everyone’s mind as a prevailing factor that will have an impact on sales and growth.
It’s Never Too Early to Create an Exit Plan
The report also reveals that according to data acquired by BizBuySell, only 53% of business owners say they have an exit plan. Only 58% of owners reported knowing what their business is worth. If you are a business owner and would like to find out more about what your business is worth, a business broker or M&A advisor can assist you with that information.
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BizBuySell just released its latest insight report, which tracked sales and growth in 2022 and compared it to the prior year. Overall, we are seeing a high demand for service-based businesses as well as an increase in restaurant business sales. The insight report also reveals what business brokers across the country are expecting for 2023 and beyond.
Data on Service Business Sales
In 2022, 39% of the acquisitions tracked by BizBuySell were service businesses, and their transactions were 7% higher than 2021. The service sector typically includes predominantly financial and healthcare related businesses. These types of companies are usually considered to be low-risk.
Across the map, buyers were willing to pay more for service businesses last year. In fact, the median sales price for service businesses rose 4% over 2021. It’s interesting to note that the sales prices were even higher than the pre-pandemic levels. Also, there is a trend towards buyers seeking out socially responsible and environmentally conscious businesses.
Data on Restaurant Businesses
Restaurant businesses also did quite well in 2022. In fact, the acquisitions of restaurants jumped 20% over 2021. They previously had plummeted 38% in 2020. While these numbers are strong, they are still 21% lower than before COVID.
Restaurant businesses also had less time on the market. The median days were 169 instead of 176 the year before. Restaurants also sold for more money. The median revenue for closed transactions was up 7% and the cash flow was up 13%. It seems that the general consensus is that dining out is popular again after years of struggles due to people avoiding meals in public.
Expectations for 2023
The conclusion of this data collected about 2022 is that buyers no longer will benefit from sitting it out. Higher interest rates are expected to be more and more of an impact for buyers in 2023. The good news is that most experts are expecting rates to get better in 2024.
Business brokers surveyed by BizBuySell expect that the market in 2023 will continue at the same place as it did in 2022. Many sellers will seek to retire. The concern of a recession should also motivate more baby boomers to sell. In fact, 45% of owners are saying they are selling to retire. At the same time, buyers will be looking for profitable companies that will grow.
The data revealed by BizBuySell indicates that those who are buying businesses may currently have the upper hand. In fact, 47% of brokers say that their view is that the market has shifted towards buyers. They attribute this to rate increases. They are finding that the majority of buyers are saying that current businesses are overpriced.
Sellers Must Be Flexible
The insight report shows that overall business brokers believe there is pressure on sellers to be more flexible in their pricing and terms. As always, seller financing is essential. In fact, 90% of buyers are saying it’s important for owners to offer this option to them. 95% of brokers echo this sentiment.
It should come as no surprise that businesses with strong financials are in high demand. When these businesses are considered recession proof, this fact is even more true. But even sellers with the strongest businesses may still have to consider offering financing or adjust prices due to the higher rates. Sellers who want to sell in the near future, of course, should begin preparing their exit now.
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