Family Businesses Are Now Less Likely to be Passed on to the Next Generation

Family businesses ownership trends are changing.

A recent survey reports some interesting results including changes in current owners’ intentions regarding ownership transfers.  The survey was done by PricewaterhouseCoopers.  The full results can be reviewed at 2017 US Family Business Survey.

According to the survey, 83 percent of family firms do not plan to change hands in the next five years.  However, the most surprising result of the survey is that among family-owned businesses contemplating a transfer of ownership within the next five years, only about half of the owners plan to pass the business on to the next generation of the family. This is down from 74 percent two years ago and is the lowest percentage in 17 years.

One possible explanation for the dramatic drop addressed in the survey is the increasing difficulty of formulating a succession plan for small to medium-sized family businesses.

The longevity of family firms depends on sound succession planning.  Companies that have made it to the third generation are much more likely to have a succession plan than younger firms.  In fact, the survey reports that 75 percent of third generation and beyond ownership have a plan for succession.

Other survey results:

  • 11 percent of family firms plan to diversify
  • 29 percent plan to expand internationally
  • 21 percent say innovation is a priority
  • 64 percent of family firms say they are more entrepreneurial than other type firms
  • 52 percent of firms say they reinvent themselves with each generation
  • 75 percent of first and second generation firms say they will give men and women equal opportunity for leadership.  With third generation and beyond, the result is 57 percent.

Our office specializes in services to family firms and offers assistance in succession planning.  Please contact us if we might be of assistance.

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William Bruce is an Accredited Business Broker and Appraiser assisting buyers and sellers of privately held businesses in the transfer of ownership.  His practice includes consulting services nationally on issues of business valuation and transfer.  He currently serves as president of the American Business Brokers Association.  He may be reached at (251) 990-5934 or by email at  His business brokerage website may be viewed at
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Selling a Business: Here’s How to Successfully Meet with a Prospective Buyer.

business-meetingPrevious articles have discussed the importance of having a good reason for selling your business, getting the business ready for salesetting the right asking pricetaking your business to market and buyer acquisition financing.  In this article, we will share some advice on how to successfully hold the first face-to-face meeting with a prospective buyer of the business.

The meeting with a prospect is extremely important.  It’s your chance to put the prospect at ease and show off the business in its best light.

You will probably want to schedule the visit after hours so as not to arouse any suspicions among your employees.  Or, you can schedule the meeting in your broker’s office if for some reason you don’t want to host it in your business.  However, I think it best, if possible, to hold the meeting at your location.  It gives the prospect a better feel for your operation.  If you are using a business broker, he will arrive with the prospect, make the introductions and facilitate the meeting.

The first meeting is sort of a “look see” for both parties.  The prospect is checking out you and the business while you are sizing him up.  It’s important to remain cordial and open.

The ideal meeting will go something like this:

  • First, you welcome the prospect into your office and make sure everyone has a chair and is comfortable. (Of course, it goes without saying that you have cleaned up the place and thrown away all of the old Dominoes Pizza lunch boxes!)
  • It’s usually best after the initial get acquainted chitchat, to give the prospect a brief history of your business and a succinct description of your current operation. (You might want to even practice this presentation to make sure you cover the important points without rambling.  If you’re using a broker, he will be with you and will help guide the meeting.)
  • Remain friendly and informal, call the prospect by name often, and ask periodically if the prospect has any questions. Answer any questions openly and honestly.
  • Be enthusiastic. Point out how much fun you’ve had running the business.  Let the prospect hear and feel how he could experience the same enjoyment you have.
  • As the meeting in your office winds down, offer the prospect a tour of your facility. Give this tour some thought beforehand, so that you can address the points that you want to during the walk-thru.  Point out anything that will help clarify any points you make in the meeting in your office.
  • As the meeting ends, you say something like this, “Well thanks for coming out and taking a look. You’ll probably have some additional questions, so don’t hesitate to get back in touch with me (or Mr. Broker if you’re using one).  I know this will be a big decision for you and we have nothing to hide, so just let me know what I can do to assist you with the process.”   Put these thoughts into your own words and they will leave a favorable impression in the prospect’s mind.

From the “school of hard knocks,” I can also give you some advice on things you DON’T want to do in the initial meeting with a prospect:

  • Don’t overcomplicate your business. Simplify it.  Don’t make it sound like the management of the company is so specialized that only a brain surgeon can do it.  I’m being facetious of course, but be careful not to scare off the prospect by planting the doubt in his mind that he would not be capable of running your business.
  • Don’t hide any problems. If there are any problems with the business, get them out up front.  There is never a better time to get any problems out on the table than in the meeting.  (See discussion below.)
  • In the initial meeting, it’s usually best to stay away from price and terms. If the prospect brings it up, just say, “My broker here has all of that information and if your will, get with him on that later.”

The importance of getting any problems out in the open up front cannot be overemphasized.  It’s partly a psychological issue.  If you bring up a problem in the beginning and discuss it openly, the importance of that problem is minimized in the prospect’s mind, compared to having it pop up unexpectedly later in the process.

For example, let’s say there is a tax lien against your business for unpaid payroll withholding taxes.  If you bring it up initially by saying something like, “By the way, I do want to mention for the sake of being completely open and honest that we have a tax lien against the business which is being taken care of (or which will be taken care of at closing) so that you will buy all of the assets of the business free and clear without any liens or other encumbrances.”

When you mention it like this, you win points for honesty and openness and it minimizes the problem.  I’ve seen many transactions fall apart when such problems are not disclosed and are later discovered by the prospect.  When discovered later – as they always are – the problem will usually “torpedo” the transaction.

This is such an important point that it bears repeating: DON’T HIDE ANY PROBLEMS.  TALK ABOUT THEM IN THE BEGINNING!

Now that I’ve been overly redundant, let’s move on.  The next article will discuss how to handle written offers to purchase the business.

For further reading, here are additional related articles:

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William Bruce is an Accredited Business Broker and Appraiser assisting buyers and sellers of privately held businesses in the transfer of ownership.  His practice includes consulting services nationally on issues of business valuation and transfer.  He currently serves as president of the American Business Brokers Association.  He may be reached at (251) 990-5934 or by email at
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Carnival Cruise Lines Returns to Mobile, Alabama. A Word of Caution is in Order.


Mobile, Alabama Cruise Ship Terminal

Carnival Cruise Lines is returning to Mobile, Alabama today.  We’re excited about the return of a cruise ship to the historic and beautiful Azalea City, home of America’s first Mardi Gras celebration.  (Hey, I’ll bet you thought Mardi Gras started in New Orleans?)

But in the midst of this enthusiasm, a word of caution is in order.

Mobile’s recent history with Carnival has not been financially beneficial. Five years ago Carnival Cruise Lines shafted the City of Mobile for $20 million.  After enticing the city to spend over $20 million for a cruise ship terminal facility, Carnival pulled its ship out of Mobile after a short tenure.  Carnival abruptly left town without even the good manners of a courtesy notice to city leaders.

It was a “Wham bam, thank you ma’am” without the “thank you.”

Carnival Corporation and  PLC (its sister corporation) comprise eleven individual cruise line brands, operating a combined fleet of 96 ships.  Brands include Carnival, Cunard, Holland America, Princess, Seabourn and four others.

Carnival Corporation was initially formed in 1972.  After achieving its position as one of the world’s most popular cruise lines, the company made an initial public offering of 20% of its common stock in 1987. This provided an influx of capital that allowed the company to begin its expansion through acquisitions. In 1989 its first acquisition was the premium operator Holland America Line.  Others quickly followed.

The CEO and owner of controlling interest in Carnival is Micky Arison, son of the founder.  Arison was born in Israel of Romanian ancestry and now lives in Miami as an American citizen.  Forbes lists him as one of the world’s wealthiest individuals.

In 1988, Carnival Cruise Lines expanded into airlines with the purchase of Pacific Interstate Airlines, which was subsequently renamed Carnival Air Lines.  This venture ended ten years later in bankruptcy court with creditors holding the bag.

Micky Arison’s companies are not ideal corporate citizens.

Arison also owns the professional basketball team, Miami Heat.  Miami area governments built Arison a $250 million dollar waterfront stadium several years ago in exchange for a rental agreement.  At 10 years into the rental contract, thanks to “creative” accounting by Arison, Miami had received no rent for the stadium, according to a columnist for the Miami New Times.

Sound familiar?

Please Mobile, Alabama leaders, keep your eyes wide open.  Don’t give away the keys to the city this time in exchange for a potentially worthless promise from Arison.

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William Bruce works in business mergers and acquisitions.  He is an Accredited Business Intermediary and currently serves as president of the American Business Brokers Association.  He may be reached at (251) 990-5934 or by email at

Posted in Gulf Coast Regional & National Economy, Mobile, Fairhope & Gulf Shores, Alabama | Tagged , | 3 Comments

Business Buyer-Seller Confidence Index Is Strong for Sale of Small to Medium Size Companies

by William Bruce, President                                                                                                                   American Business Brokers Association
business-for-sale, the Internet’s largest business-for-sale marketplace, recently announced the results of its annual Business Buyer-Seller Confidence Index, an indicator of small business buyer and seller sentiment on the current business-for-sale environment. The confidence index is calculated by evaluating survey responses of more than 1,500 people interested in either buying or selling a small business.

A separate score is calculated for both current small business owners interested in selling and prospective buyers currently exploring the market. Each group’s score ranges from 0 to 100, with 100 representing a perfect environment for buying or selling a business.

This year’s results showed sellers feeling more confident that they can successfully exit their businesses as the Seller Confidence Score grew to 62 after two consecutive years at 56. Not only did a majority of owners (58 percent) believe they can receive more money for their businesses than they could last year, but more than 90 percent were optimistic enough to say they will be able to achieve the same or higher sale price next year. Respondents to both questions responded with higher, more optimistic percentages than did the same last year. Overall, this is a good indication that sellers have seen conditions improve since the recession and are confident that favorable conditions will continue in 2016.

Sellers also indicated an increased number of buyers in the market this year. When asked to identify the biggest issues limiting their ability to sell, just 12 percent said they couldn’t find a buyer – a significant drop from the 27 percent who indicated a shortage of buyers in 2014. Perhaps even more importantly, 43 percent of sellers said they have no issues and could successfully exit their businesses right now compared to just 23 percent who felt the same level of confidence last year.

“Small business owners are definitely viewing today’s market as a great opportunity to sell,” said Bob House, Group GM of and “We’re also seeing this increased confidence translating into more owners actually listing their small business on the market. The number of for-sale businesses on reached a six-year high this year, driven by increasing small business financial performance in the post recession period.”

My own business sales, mergers and acquisitions practice based here on America’s Gulf Coast reflects this national trend.  We’re busier in my office now than we’ve been since early 2007.

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William Bruce is an Accredited Business Intermediary and Appraiser assisting buyers and sellers of privately held businesses in the transfer of ownership.  His practice includes consulting services nationally on issues of business valuation and transfer.  He currently serves as president of the American Business Brokers Association.  He may be reached at (251) 990-5934 or by email at  His business brokerage website may be viewed at


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Banks Rated Strongest to Weakest in Mobile and Baldwin Counties, Alabama

Wells FargoIt’s been a year since we reviewed the local banking scene, so we offer this update.

Banks are often placed on a pedestal in the public mind, but they are like any other category of business in that some are stronger and better managed than others.

One publicly available bank rating service is  This system employs more than 20 tests to measure the capital adequacy, asset quality, profitability and liquidity of each rated bank. Individual performance levels are determined from publicly available regulatory filings and are compared to asset-size peer norms, industry standards and key benchmarks. Combined results form the basis for the star ratings. assigns a 1-to-5 star ranking with five stars representing the highest rating. Institutions with satisfactory performance will generally receive a rating of three or more stars with the majority of banks falling into the three to four-star range.  Ratings are believed to be reliable but the information is not guaranteed.

In addition, events since the information was collected may have altered an institution’s financial condition.  The current ratings are based on the banks’ financial statement as of December 31, 2015.

Since our last report two banks with local branches have improved their rankings.  Community Bank and The First Bank, both based in Mississippi, have both moved up from from three stars to a four stars ranking.  But two banks lost a star. Woodforest National Bank, found in some Wal-Mart stores, dropped from five to four stars.  And First Community Bank moved down a notch to three stars.

One new bank that has entered the market since our last report is Birmingham-based Oakworth Capital Bank with a branch in downtown Mobile.  Alabama Attorney General Luther Strange is a founder of the bank and serves as a director.  The bank is top rated at five stars.

The following results for Mobile and Baldwin Counties, Alabama, are based on the banks’ financial statements as of December 31, 2015 as ranked by

5 Stars (superior, top rated):

  • Bank of the Ozarks
  • Oakworth Capital Bank
  • ServisFirst Bank
  • Wells Fargo Bank

4 Stars (sound, indicative of a sound financial condition):

  • Bancorp South
  • BB&T
  • BBVA Compass
  • Bryant Bank
  • Centennial Bank
  • Century Bank
  • Citizens Bank
  • Coastal Bank & Trust  (the trade name used by Synovus Bank in Alabama)
  • Community Bank
  • First Bank
  • Hancock Bank  (the trade name used by Whitney Bank in Alabama)
  • Iberia Bank
  • National Bank of Commerce
  • PNC Bank
  • RBC Bank
  • Regions Bank
  • Southpoint Bank
  • State Bank & Trust
  • TrustMark
  • United Bank
  • Woodforest National Bank

3 Stars (performing, indicative of a generally satisfactory financial condition):

  • First Community Bank
  • Merchants Bank

2 Stars (below peer group, indicative of a below average financial condition):

  • No banks in the local market were rated 2 stars

1 Star (lowest rated)

  • Commonwealth National Bank

Again this year Commonwealth National Bank is the only local bank with the lowest ranking.  The bank is headquartered at 2214 St. Stephens Road in Mobile.  In the composite summary of the bank, the rating service said, “Bankrate believes that, as of December 31, 2015, this bank exhibited a significantly below average condition, characterized by substantially lower than normal overall, sustainable profitability, very questionable asset quality, below standard capitalization and near normal liquidity.”

The “very questionable asset quality” noted by Bankrate refers primarily, it is assumed, to Commonwealth’s loans receivable and most probably represents a significant problem for any stronger banks considering a rescue by acquisition of the troubled bank.

In summary, please keep in mind that these ratings are based on information furnished by the banks as of December 31, 3015.  Things could have changed since then.  And there are other bank rating services whose rankings may differ.

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William Bruce has served as a bank director.  He is a business broker, an Accredited Business Intermediary and business appraiser.  He consults nationally on issues involved in business transfers and valuation.  He may be reached at  or (251) 990-5934.  He currently serves as president of the American Business Brokers Association.
Posted in Alabama's Economy, Gulf Coast Regional & National Economy | Tagged , , , , , , , , , , , , , , , , , , , , , , , , | Leave a comment

How to Use the SBA 7(a) Loan Program to Buy a Business

SBA 7(a) loans explained

The SBA 7(a) program is a popular loan option for buying a business.

Except for the SBA 7(a) program, banks generally do not make loans to individuals to buy a business.  This statement will surprise a lot of people.

Most people will think first of a conventional bank loan when seeking financing to buy a business.  But I can tell you from decades of experience, this just doesn’t happen often.  The bank’s advertising will lead you to believe they do, but they will usually find some reason not to make a business acquisition loan.

However, after you’ve bought the business and been operating for a while, the irony is this:  The same banker that turned you down for a loan to buy the business will come by your office soliciting your business.

Now this is a true and humorous story.  One of my clients who had been turned down by a local bank for a business acquisition loan, had the same banker visit him two years later soliciting his account after he had used other means to buy the business.  The business owner assumed a serious air and in a somber tone, replied, “Well now Mr. Banker, we’ll be happy to consider your application for our business. Let’s see, we’ll need your financial statement and a list of references and your business plan for five years into the future. Once we have your completed application, I’ll be glad to take it before my committee and let you know of our decision.”

The banker was taken aback.

But fortunately for individuals considering buying a business, participating banks have the Small Business Administration 7(a) loan program to offer.  Except for some specialized programs, the SBA does not make direct loans to borrowers.  Instead, the SBA guarantees a percentage of the principal amount that the bank loans to you.  In a practical sense, the SBA is co-signing the loan with you at your bank.

What is the 7(a) program?

It is the SBA’s most popular business loan program.  To be eligible for such a loan to buy a business, the borrower and the business must:

  • Operate for profit
  • Be small, as defined by SBA
  • Be engaged in, or propose to do business in, the United States or its possessions
  • Have reasonable invested equity
  • Have a minimum personal credit score of 660
  • Use alternative financial resources, including personal assets, before seeking financial assistance
  • Be able to demonstrate a need for the loan proceeds
  • Not be delinquent on any existing debt obligations to the U.S. government
  • An independent, third party valuation of the business must meet or exceed the agreed upon acquisition cost.

Additionally, after deducting a reasonable salary for the owner, the business being acquired must produce a net cash flow of 1.25 times debt service.

Some banks do not participate in the SBA loan programs, but fortunately many national, regional and community banks do participate.  Some banks are designated by the SBA as “Preferred Lenders” which means they have a streamlined application process and more local underwriting authority.  My experience is that you’re much better off using a Preferred Lender compared to a bank that only processes a few SBA loans per year.  The top 100 most active SBA 7(a) lenders can be found here.

Admittedly, the SBA loan application can be time consuming and sometimes frustrating.  But keep in mind, the SBA-backed loans are approved in a lot of instances where no other financing options are available.

The maximum amount that can be loaned under the program is $5 million. The average loan in fiscal year 2015 was $371,628.  Interest on the loans is negotiable with the SBA setting the maximum rate that a bank can charge.  As this is being written, the maximum rate for loans over $50,000 is 6.25 percent.

The down payment required is usually 20 percent of the price of the business being acquired.  Some lenders will allow a portion of this 20 percent to be covered by a seller note (ie: a note payable from the buyer of the business to the seller for a portion of the acquisition cost).  SBA restrictions on this seller note usually do not allow repayment of principal and interest for a stated period of time.

The length of the loan for business acquisition can be up to 10 years, or for real estate, the term can be up to 25 years.

There are fees involved in applying for a 7(a) business acquisition loan but in many cases, these fees can be added into the loan amount.

Banks love collateral and will usually reach out and grab whatever collateral is available; however, many lenders will approve a SBA 7(a) loan even when there is less than 100 percent available collateral coverage.  Some banks are more “cash flow lenders” than others, meaning that they will look more to the future earnings of the business being acquired as collateral for the loan rather than current hard assets.

My office stays up to date on the loan preferences and appetites of many lenders.  If you need a recommendation of a bank most suited for your particular situation, just shoot me an email at

For further reading, here are additional related articles:

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William Bruce is an Accredited Business Intermediary and Appraiser assisting buyers and sellers of privately held businesses in the transfer of ownership.  His practice includes consulting services nationally on issues of business valuation and transfer.  He currently serves as president of the American Business Brokers Association.  He may be reached at (251) 990-5934 or by email at 


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The 3 Financial Benchmarks All Business Owners Should Monitor.

Updated February 14, 2017.

Financial ratios

Many small to medium size business owners, including this author, get wrapped up in day to day management of their businesses to the exclusion of some important aspects of oversight.

The ultimate business benchmark is, or course, bottom line net profit.  However, the three financial ratios discussed here don’t take long to calculate and will keep you on track for a healthy bottom line number.  These are the three that should be checked frequently to monitor the ongoing health and viability of your business:

Gross Profit Margin

Gross profit is simply your total sales (less sales tax) minus the cost of products sold.  Other expenses like rent, payroll, etc. are not considered in this calculation.  The gross profit margin is usually expressed as a percentage by dividing the gross profit by total sales.

For example, if your gross sales for last year (exclusive of sales tax) were $500,000 and the cost of the products you sold was $220,000, then your gross profit was $280,000.  Dividing your gross profit by total sales, we can calculate that your gross profit margin was 56 percent.  The rest of your expenses come out of this gross profit to compute your net profit.

Most industries have benchmarks for gross profit margin.  If yours is above your peer group, you’re doing a good job.  If lower, look for ways to improve.

Current Asset Ratio

This ratio is a measure of your company’s ability to pay its bills as they become due.  It is calculated by dividing your company’s current assets by its current liabilities.

Current assets are cash in the bank, accounts receivables and any other assets you expect to be converted into cash within the next 12 months.  Current liabilities are those obligations that will become due and payable during the next 12 months.

A ratio of two or better is considered by most analysts to be a comfortable situation.  If it’s one or lower, you’ll be waking up in the middle of the night!

Inventory Turn

This calculation measures how fast you’re selling and replacing your inventory.  Inventory turn is particularly important in retail and wholesale operations, but has application in all business categories.  It’s calculated by dividing the average inventory for the time frame being analyzed by the cost of goods sold.

Again, consult your industry benchmark for what is average in your niche.  The higher the turn, the better job you’re doing in managing your inventory level.  A low number most likely means you’re carrying too much inventory for your level of sales.

In summary, don’t be intimidated by the idea of periodically calculating these benchmarks.  It’s pretty easy.  And if you need help, ask your accountant.

Here are related articles you might find interesting.

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William Bruce is a business broker, an Accredited Business Intermediary and a business appraiser.  His practice includes consultations nationally on matters involving business valuations and transfers.  He currently serves as president of the American Business Brokers Association.  He may be reached at (251) 990-5934 or by email at

Posted in Business Valuation & Appraisal, Buying or Selling a Business | Tagged , , , , , | Leave a comment