Business Opportunities:

Business Opportunities: Success and Failure Statistics as Well as Possible Prevention

Let's face it, business opportunities are a rather quick, easy way to start a business. They are usually "turnkey" operations, where someone that buys into a program either online or offline is provided with all the necessary elements of immediately being in business for themselves. Business opportunity programs can also be cost effective, as many abound, and finding one within a restricted budget is rather easy.

The biggest challenges faced when choosing a business opportunity program are the following:

1. Choosing one that suits an entrepreneur's needs and skills as well as interests.
2. Choosing one that pays enough in commissions on goods or services that makes it lucrative enough to turn a healthy profit.
3. Choosing one that is wanted and needed by customers/clients.
4. Choosing one that does not exist in an already glutted market. This would lead to too many choices of other providers and a rather limited market for the business owner.

The sad facts are that because of the easy start up, and the rather quick "fix" that business opportunities present to potential entrepreneurs, business opportunity members can quickly enter a business and just as quickly leave it. Turnover can be quite a problem. Since little initial investment is required, many members "jump into" a business opportunity at whim, and quickly find that running a business is a whole heck of a lot of work!

The reason for the failure rate is also attributable to certain outlooks and requirements that many business opportunity "joiners" fail to consider when joining:

1. Is the business opportunity nothing more than empty promises, the old "too good to be true" adage? Unfortunately, these types of offerings run rampant both online and offline.
2. Is the business opportunity catering to a dying market? Markets can fluctuate, so due diligence is needed. Research into markets, just as with any other business is paramount.
3. Is the business opportunity solvent? Talk to other members, and do research. Become aware of any problems in payments/revenues before you join.
4. Is the business opportunity flexible? Does the Biz Op restrict members in their advertising methods, or are they inflexible and "distant" in their approach to members' concerns/problems.
5. Is the business opportunity viable? Viability should be financial as well as personal. In other words, does the Biz Op have a great financial track record and does it meet the needs of "you" personally, as far as personal satisfaction and approaches to sales and marketing?
6. Is the business opportunity working within the confines of federal, state and local laws? Depending upon where a member lives, these laws can vary widely!

The real statistics on failures of small businesses, many of which now are business opportunities and franchises, are well documented by the United States Small Business Administration: www.sbaonline.sba.gov/. Business statistics provided by the United States Department of Labor, report that in 1994, the number of businesses that failed that year were divided into the following categories:

• Bankruptcies (a 15.4% increase from 1993).
• Failures (a 17% increase from 1993).
• Terminations (.3% increase from 1993).

The Small Business Administration attributes these failures and the evolving higher percentages to the fact that there are now MORE small businesses in the United States overall, with a 49% increase in numbers since 1982.

The Small Business Administration also states specifically that statistically, only one in seven can be considered a true "failure", leaving unpaid obligations in their wakes. Others simply sell or shut their doors for a variety of other reasons.

Since most business opportunities, at least initially, open with less than 100 employees (many are simply the owner, as sole owner and executor of all business "chores"), then most Biz Ops are indeed "small businesses" and as such all the pertinent failure statistics can be applied to them. What is really surprising and rather "staggering" is the fact that most business failures are not due to outside forces, but those that the business owner has complete control over! These issues included lack of marketing know-how, lack of record keeping, lack of management competence, lack of financial management, and other business basics such as controlling employees and the inability to seek outside assistance and advice!

The wise business owner, whether or not involved in a business opportunity, will seek to learn and implement proper procedures, and investigate proper methods of operation throughout the life of a business.

If this is done, a Biz Op owner, or any small business owner, has less of a chance of becoming the "latest failure statistic"!

Business brokers and sellers

Services provided to seller as client

Upon signing a listing contract with the seller wishing to sell the business, the brokerage attempts to earn a commission by finding a buyer for the sellers' business for highest possible price on the best terms for the seller. To help accomplish this goal of finding buyers, a business brokerage commonly does the following:

* Ensures Confidentiality--Brokers have established systems in place to protect the confidentiality of a business.
* Appraisals--Most business owners have no idea what their business is worth. Certified Business Brokers are trained in business valuation and can help business owners understand the true value of all their hard work and sacrifice.
* Market Knowledge--Brokers make their living selling businesses. They are in the market on a daily basis conversing with Buyers. A local business broker understands the local market as well as what a business is worth.
* Saves time and stress
* Listing the business for sale to the public, often on a Multiple Listing Service, in addition to any other methods.
* Based on the law in several states, providing the seller with a business condition disclosure form, and other forms which may be needed.
* Preparing necessary papers describing the business for advertising, pamphlets, tours, etc.
* Advertising the business. Advertising is often the biggest outside expense in listing a business.
* Being a contact person available to answer any questions about the business and to schedule showing appointments
* Ensuring buyers are prescreened so that they are financially qualified to buy the business; the more highly financially qualified the buyer is, the more likely the closing will succeed.
* Negotiating price on behalf of the sellers. The seller's agent acts as a fiduciary for the seller. By not being emotionally tied to the transaction, Business Brokers are in a position to more effectively negotiate on a Seller's behalf. This may involve preparing a standard offer to purchase contract by filling in the blanks in the contract form.
* In some cases, holding an earnest payment in escrow from the buyer(s) until the closing. In many states, the closing is the meeting between the buyer and seller where the business ownership is transferred and the businesses name is conveyed.

Business brokers attract prospective buyers in a variety of ways, including listing limited details of available businesses on their websites and advertising in business newspapers and magazines. Brokers also directly approach prospective buyers and sellers to gauge interest.


The "listing" contract

Although there can be other ways of doing business, a business brokerage usually earns its commission after the business broker and a seller enter into a listing contract and fulfill agreed-upon terms specified within that contract. The seller's business is then listed for sale, often on a Business specific Multiple Listing Service (MLS) in addition to any other ways of advertising or promoting the sale of the property.

In most of North America, a listing agreement or contract between broker and seller must include the following: starting and ending dates of the agreement; the amount of compensation due to the broker.


Brokerage Compensation

There are three forms of Brokers compensation; hourly, retainer, and success fee (commission upon a closing). A Broker may use any one, or combination of these when providing services. The most common form of compensation is a success fee commission where the payment of a commission to the brokerage is contingent upon finding a satisfactory buyer for the business for sale, the successful negotiation of a purchase contract between a satisfactory buyer and seller, or the settlement of the transaction and the exchange of money between buyer and seller. Just as major investment banks normally charge a retainer for services, more business brokers have started to embrace this practice as well. The retainer helps covers the upfront costs incurred by the broker to perform services and shows a commitment on the part of the client (seller or buyer) that they are serious. Certain types of merger and acquisitions transactions involve securities and may require that an intermediary be securities licensed in order to be compensated.

In North America success fee commissions range from 5% to 12%. Usually, the smaller the transaction, the larger the commission. "Main Street" businesses, those with revenues between $100,000 and $1,000,000 can expect commissions to average bewteen 8% - 12%. Commissions are determined between the client (seller or buyer) and their broker and are normally paid at closing.

The standard commission is likely to be lower in the United Kingdom (see Lehman scale). Commissions are negotiable between seller and broker. The commission could also be paid as flat fee or some combination of flat fee and percentage, particularly in the case of lower-priced businesses, businesses in the multi-million dollar price, or other unusual business assets. The details are determined by the listing contract.

Out of the commission received from the seller, the broker will typically pay any expenses incurred to do the work of trying to sell the listed businesses, such as advertisements, etc.

General

The sellers and buyers themselves are the principals in the sale, and business brokers (and the principal broker's agents) are their agents as defined in the law. However, although a business broker commonly fills out the offer to purchase form, agents are typically not given power of attorney to sign the offer to purchase or the closing documents; the principals sign these documents. The respective business brokers may include their brokerages on the contract as the agents for each principal.

The use of a business broker is not a requirement for the sale or conveyance of a business or for obtaining a Small business or SBA loan from a lender. However, once a broker is used, A special escrow attorney sometimes called a settlement attorney (or party handling closing) will ensure that all parties involved be paid. Lenders typically have Special requirements for a business related or SBA loan.

The market served by business brokers generally involves the sale of businesses with transaction values less than $10 M. Larger privately held companies are classified in the Middle Market and will employ firms that specialize in Mergers and Acquisitions, or M&A. However, business brokers do participate in mergers and acquisitions activities when it involves a transaction between two or more smaller companies. Business Brokers and M&A firms do overlap activities in the extremes of their market. These extremes are called the Transitional Market, or TransMarket.

Types of services that a broker can provide

Broker services vary widely depending on the practice and skill set of the broker. The most common services provided by a broker to a client are:

* Assist client in establishing a MPSP Value - Most Probable Selling Price Valuation; the techniques used by individual brokers can vary greatly in this process
* Develop a comprehensive Information Memorandum on the company; normally a 15-30 page document outlining the business for potential buyers
* Conduct buyer searches
* Exposure - Marketing the business to prospective buyers
* Screen buyers for ability to complete a purchase
* Coordinate negotiations and provide deal structuring advice
* Provide overall deal management to guide the client through the entire process
* Help maintain confidentiality of the sale
* Hourly Consulting for a fee, based on the client's needs

Perhaps one of the biggest services provided by brokers is the ability to allow owners to stay focused on running their business during the sale process which can be take on average 6 months to 12 monthes to complete.

Business broker

A business broker is a person or firm who/which acts as an intermediary between sellers and buyers of small businesses.

Business brokers, also called business transfer agents, or intermediaries, assist buyers and sellers of privately held small business in the buying and selling process. They typically estimate the value of the business; advertise it for sale with or without disclosing its identity; handle the initial potential buyer interviews, discussions, and negotiations with prospective buyers; facilitate the progress of the due diligence investigation and generally assist with the business sale.


Agency relationships with clients and customers

Traditionally, the broker provides a conventional full-service, commission-based brokerage relationship under a signed agreement with a seller or "buyer representation" agreement with a buyer. In most states this creating under common law an agency relationship with fiduciary obligations. Some states also have statutes which define and control the nature of the representation.

Agency relationships in business ownership transactions involve the representation by a business broker (on behalf of a brokerage company) of the selling principal, whether that person is a buyer or a seller. The principal broker (and his/her agents) then become the agent/s of the principal, who is the broker’s client. The other party in the transaction, who does not have an agency relationship with the broker, is the broker's customer.

Transactions Brokers

In some states of the USA, business brokers act as transactions brokers. A transaction broker represents neither party as an agent, but works to facilitate the transaction and deals with both parties on the same level of trust. Most states that operate business transactions as Transactions Brokers also operate Real Estate transactions as Transaction Brokers.


Dual or limited Agency

Dual agency occurs when the same brokerage represents both the seller and the buyer under written agreements. Individual state laws vary and interpret dual agency rather differently.

* If state law allows for the same agent to represents both the buyer and the seller in a single transaction, the brokerage/agent is typically considered to be a Dual Agent. Special laws/rules often apply to dual agents, especially in negotiating price.
* In some states of the USA (notably Maryland[1]), Dual Agency can be practiced in situations where the same brokerage (but not agent) represent both the buyer and the seller. If one agent from the brokerage has a home listed and another agent from that brokerage has a buyer-brokerage agreement with a buyer who wishes to buy the listed property, Dual Agency occurs by allowing each agent to be designated as “intra-company” agent. Only the principal broker himself/herself is the Dual Agent.
* Some states do allow a broker and one agent to represent both sides of the transaction as dual agents. In those situations, conflict of interest is more likely to occur.

Intellectual property & Exit plans

Intellectual property

Businesses often have important "intellectual property" that needs protection from competitors in order for the company to stay profitable. This could require patents or copyrights or preservation of trade secrets. Most businesses have names, logos and similar branding techniques that could benefit from trademarking. Patents and copyrights in the United States are largely governed by federal law, while trade secrets and trademarking are mostly a matter of state law. Because of the nature of intellectual property, a business needs protection in every jurisdiction in which they are concerned about competitors. Many countries are signatories to international treaties concerning intellectual property, and thus companies registered in these countries are subject to national laws bound by these treaties.

Exit plans

Businesses can be bought and sold. Business owners often refer to their plan of disposing of the business as an "exit plan." Common exit plans include IPOs, MBOs and mergers with other businesses

Capital

When businesses need to raise money (called 'capital'), more laws come into play. A highly complex set of laws and regulations govern the offer and sale of investment securities (the means of raising money) in most Western countries. These regulations can require disclosure of a lot of specific financial and other information about the business and give buyers certain remedies. Because "securities" is a very broad term, most investment transactions will be potentially subject to these laws, unless a special exemption is available.

Capital may be raised through private means, by public offer (IPO) on a stock exchange, or in many other ways. Major stock exchanges include the New York Stock Exchange and Nasdaq (USA), the London Stock Exchange (UK), the Tokyo Stock Exchange (Japan), and so on. Most countries with capital markets have at least one.

Business that have gone "public" are subject to extremely detailed and complicated regulation about their internal governance (such as how executive officers' compensation is determined) and when and how information is disclosed to the public and their shareholders. In the United States, these regulations are primarily implemented and enforced by the United States Securities and Exchange Commission (SEC). Other Western nations have comparable regulatory bodies.

As noted at the beginning, it is impossible to enumerate all of the types of laws and regulations that impact on business today. In fact, these laws have become so numerous and complex, that no business lawyer can learn them all, forcing increasing specialization among corporate attorneys. It is not unheard of for teams of 5 to 10 attorneys to be required to handle certain kinds of corporate transactions, due to the sprawling nature of modern regulation. Commercial law spans general corporate law, employment and labor law, healthcare law, securities law, M&A law (who specialize in acquisitions), tax law, ERISA law (ERISA in the United States governs employee benefit plans), food and drug regulatory law, intellectual property law (specializing in copyrights, patents, trademarks and such), telecommunications law, and more.

In Thailand, for example, it is necessary to register a particular amount of capital for each employee, and pay a fee to the government for the amount of capital registered. There is no legal requirement to prove that this capital actually exists, the only requirement is to pay the fee. Overall, processes like this are detrimental to the development and GDP of a country, but often exist in "feudal" developing countries.