Understanding Corporate Social Responsibility (CSR)

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If you don’t exactly understand what corporate social responsibility (CSR) means, don’t worry.  We’ll cover the main points you need to know.  CSR is increasingly seen as something that companies of all sizes need to be aware of, so let’s take a closer look at a few of the finer points.

There are 4 basic pillars in CSR: the community, the environment, the marketplace and the workplace.  The community pillar of CSR refers to your company’s contribution to the local community; this contribution can take a variety of forms ranging from financial support to personal involvement. 

The second pillar of CSR is the environment.  The simple fact is that people around the world are becoming much more environmentally aware.  You can be quite certain that a percentage of your customers and/or clients have environmental concerns. 

Increasingly, consumers want to know that the companies that they are purchasing from have good environmental practices.  There are many ways that businesses can show that they are environmentally aware.  They range from recycling and using low-emission and high-mileage vehicles whenever possible to adopting packaging and containers that are environmentally friendly. 

The third pillar of CSR is the marketplace.  Proper corporate social responsibility includes the responsible utilization of advertising, public relations, and ethical business conduct.  Another key element in the marketplace pillar is adopting fair treatment policies towards suppliers and vendors, contractors and shareholders.  In other words, the marketplace aspect of CSR means rejecting exploitative business practices in favor of fairer and more equitable business practices. 

The final pillar of CSR concerns the workplace.  In the workplace pillar, CSR encourages the implementation of fair and equitable treatment of employees, as well as observing workplace safety protocols and embracing equal opportunity employment and labor standards.

Adopting CSR practices in today’s business climate is a prudent decision, as it serves to increase both shareholder and investor interest, while simultaneously encouraging a company’s value.  Likewise, embracing CSR practices can make it easier to attract a buyer and that party may be willing to pay a higher selling price.

Typically, buyers want a business that has many of the attributes supported by the four pillars of CSR.  Buyers want businesses that enjoy a high level of customer loyalty and have good overall relations with the local community.  Additionally, buyers want businesses that have quality relationships with their suppliers and vendors as well as loyal and dependable employees. 

Sellers must realize that buyers want products, goods and services that are in line with the current trends of the marketplace and have an eye towards future trends.  Finally, buyers want as little “baggage” as possible.  You can be certain that buyers don’t want to find any skeletons lurking about in the company closet.  The proper utilization of CSR can address all of these concerns and, in the process, make your business more attractive to a potential buyer.

Copyright: Business Brokerage Press, Inc.

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Is Your Deal Really Going to be Successful?

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If you’re selling your business and things are looking positive with your buyer, you might be tempted to start resting easy. If you have a signed letter of intent, you might be even more tempted to think that things are pretty settled. However, the fact of the matter is that much can be uncovered during the due diligence process, and that is often when deals start to fall apart. Due diligence is an essential step that protects buyers, and sellers should be well-prepared to have things in good shape far in advance. Let’s take a closer look at some areas where a deal can potentially go awry. 

Products and Equipment 

When the sale involves a business that handles manufacturing, equipment is carefully evaluated during due diligence. Buyers will be thinking about any potential environmental issues that could affect the business. If you’re selling a business and have loose ends with your equipment or facility, this should be handled in advance if possible. 

Buyers will also be looking at the various product lines and inventory. They will be considering how the sales are spread among the product lines. For example, if one product makes up the majority of sales, that can raise red flags in the mind of a buyer. They will also think about supplies and how likely they are to be stable once the business switches hands. 

Buyers will want to look at breakdowns of customers so they can consider the company’s market share and also where the sales are coming from. Similarly, to only having one product, if a business only has one or two key buyers, that can be a source of concern for buyers. 

Intangible Assets

When you are selling a business, your buyers will also be thinking about the assets like intellectual property. Will all trademarks, patents and copyrights be transferred during the sale? If not, it can be a big source of concern for buyers. 

Buyers will also consider the state of the human resources department. Sellers should be aware that buyers will be typically looking for established staff members who are unlikely to leave. This is another area where sellers have the opportunity to prepare in advance to achieve optimal results. 

Sales Issues

Your prospective buyer will want to carefully examine accounts receivable. So if you have bad debt, you might want to sort out these kinds of issues before the due diligence phase. They will also want to have a firm understanding of everything that is included in the sale. Oftentimes during due diligence, a buyer finds out that equipment or patents are not included with the sale, and it quickly derails the deal. 

If you’re selling a business, you’ll want to put yourself in the buyer’s shoes and consider what you would want to see if you were buying a business. Anything that you can do in advance to improve your workforce, equipment, premises, and financial records is highly recommended.  The goal is to have a smooth transition for the buyer, and anything that could stand in the way of that taking place should be analyzed and improved if possible. When you work with a business broker or M&A advisor to sell your business, you will have an expert in your corner to help sort out the details.

Copyright: Business Brokerage Press, Inc.

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When Should Sellers Proceed with Caution?

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Selling your business is typically quite an involved process that takes a series of months. Sellers typically experience a variety of ups and downs during that time. This is true even in the case of the most successful deals. That’s why you will want to keep your eyes open during the process so that you will be equipped to vet your potential buyers.

This article will take a look at various aspects of the sales transaction that could be concerning and could mean that a deal is less likely to be successful. It’s a good idea to identify these types of situations so you’ll be better prepared to notice them if they were to occur. After all, the last thing you’ll want to do is waste your time and energy dealing with a prospective buyer that is not a good candidate for buying your business. 

Signs of Lack of Interest

There are countless instances when sellers have been approached by prospective buyers, but the parties controlling the purchase are never involved. If a company expresses interest in your business, but the President or CEO seems to be too busy to talk to you, it more than likely means that there is something off about the situation. If communication starts to fizzle out during the process, it very well could also mean that your buyer is not truly interested. 

Inexperienced Buyers

What if you’re dealing with an individual buyer? If an individual says that he or she is interested in buying your business, but has no experience in your industry and no history of owning businesses in the past, this can be a red flag. Even if this buyer does have serious intentions, he or she may become nervous and start to feel overwhelmed as things progress with your deal. In the early stages when you are being approached by potential buyers it is a good idea to not get too wrapped up in buyers that do not appear to be completely legitimate. 

Withholding Information 

There are situations where caution should be warranted in the later stages of a deal as well. For example, in some instances, sellers have not been allowed to see the buyer’s financial statements. Clearly, that could mean that the buyer doesn’t have the resources actually necessary to proceed. 

When you work with a business broker or M&A advisor, you will find that you have built in protection from buyers that are not the right fit. Most brokerage professionals have seen it all and tend to be able to sense when something is too good to be true, or just simply not quite right. Also, when challenges do occur, having a third party involved can go a long way in effectively getting things back on track. 

Copyright: Business Brokerage Press, Inc.

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How Improved Negotiation Tactics Can Benefit Your Deals

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There is no underestimating the importance of negotiation when you are buying or selling a business. Let’s take a look at some of the most often used strategies and our recommendations. 

The Direct Approach

One approach in negotiations is what we often refer to as the “take it or leave it” strategy. In this scenario, the buyer makes an offer, and the seller then counters that offer. There is little negotiation work necessary, as both parties are direct and simple about the numbers and terms they propose. The drawback to this approach, however, is that when it doesn’t work, there is little to no recourse. When this “direct approach” offer isn’t accepted by one of the parties, there is little opportunity for flexibility on either side. Therefore, the direct approach can be somewhat of a risk.

Focusing on Influential Details

There are typically certain aspects of a deal where a buyer or seller is unwilling to compromise. Sometimes this aspect isn’t even financial in nature. It could be anything from the desire to move the business to a new site, to employment of a friend or relative. Once the negotiations embrace and include these non-negotiables, it can help expedite a successful deal. 

Splitting the Difference

A common approach that is seen when buying or selling businesses is that one side offers to split the difference. Unlike the direct approach, there is a good deal of flexibility here. When one party shows that they are open to split the difference, it is often seen as a way to keep negotiations going. Another point in favor of this approach is that communication continues. Obviously when one or both sides stop talking, the deal has not been successful. 

Third Party Involvement 

When it comes to finding solutions and resolutions, having a third party involved is tremendously beneficial. When you bring in a business broker or M&A advisor, that individual can then help facilitate the negotiated solutions. This third party is seen as skilled, yet also more of an impartial party. Business brokers and M&A advisors also have many years of experience encouraging buyers and sellers to understand and work with one another. 

Your brokerage professional can help both parties agree to a fair price while handling the aspects of all the small details involved in buying and selling businesses. Negotiations almost always benefit from having a professional involved, as they bring a different, and much needed, perspective to the table. 

Copyright: Business Brokerage Press, Inc.

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Confidentiality Agreements: What are the Most Important Elements?

Every business has to be concerned about maintaining confidentiality.  In fact, it is common for business owners to become somewhat obsessed with confidentiality when they are getting ready to sell their business.

It goes without saying that owners don’t want the word that they are selling to spread to the public, employees or most certainly their competitors.  Yet, there is something of a tug of war between the natural desire for confidentiality and the desire to sell a business for the highest amount possible.  At the end of the day, any business owner looking to sell his or her business will have to let prospective buyers “peek behind the curtain.”  Let’s explore some key points that any good confidentiality agreement should cover.

At the top of your confidentiality list should be the type of negotiations.  This aspect of the confidentiality agreement is, in fact, quite important as it stipulates whether the negotiations are secret or open.  Importantly, this part of the confidentiality agreement will outline what information can be revealed and what cannot be revealed.

Also consider the duration of the agreement.  Your agreement must be 100% clear as to how long the agreement is in effect.  If possible, your confidentiality agreement should be permanently binding.

You will undoubtedly want to outline what steps will be taken in the event that a breach does occur.  Having a confidentiality agreement that spells out what steps you can, and may, take if a breach does occur will help to enhance the effectiveness of your contract.  You want your prospective buyers to take the document very seriously, and this step will help make that a reality.

When it comes to “special considerations” category, this should be elements that apply to the business in question.  Patents are a good example.  A buyer could learn about inventions while “kicking the tires,” and you’ll want to be quite certain that any prospective buyer realizes that he or she must maintain confidentiality regarding any patent related information.

Of course, do not forget to include any applicable state laws.  If the prospective buyer is located outside of your state, then that is an issue that must be adequately addressed.

A confidentiality agreement is a legally binding agreement.  And it is important that all parties involved understand this critical fact.  Investing the money and time to create a professional confidentiality agreement is time and money very well spent.  An experienced business broker can prove invaluable in helping you navigate not just the confidentiality process, but also the process of buying and selling in general.

Copyright: Business Brokerage Press, Inc.

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How Can You Identify a Serious Buyer?

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No one wants to waste their time and energy trying to sell their business to someone who isn’t actually planning to buy. That’s why it’s so important for you and your business broker or M&A advisor to focus on the most qualified and serious buyers. But how can you really make these kinds of assessments about a buyer’s viability until they sign on the dotted line? Let’s take a look at some signs that will help you figure out your buyer well in advance. 

Do they have a history of ownership?

When someone has owned a business in the past, they have a firm understanding of what is involved. As a result, they are more likely to be a serious buyer. It also means they are more likely to move forward. You will also find that they have the ability to make a substantial down payment and financing options. While they might want you to help them with financing, you should still be looking to ensure they will put their own capital at risk as well. 

Are they seeking information about your cash flow?

If a buyer is serious, it goes without saying that they will want to make sure the business is profitable. They should be asking a lot of questions about not only your cash flow, but also your inventory.  If you have unusable inventory this could be of concern to a buyer. Be sure to disclose this information upfront, as it will likely be discovered in the due diligence process regardless.  

Are they asking about the health of your staff?

Any real buyer would want a dedicated and reliable staff. If your buyer is asking about salaries, it is a good sign that they are serious. After all, if you’re only paying minimum wage, chances are that your staff will not have a lot of staying power. These days, many companies are suffering due to staffing issues, and it’s something that should be front and center in any serious buyer’s mind.

Do they have an interest in the industry?

If your prospective buyer is asking questions about the industry, that is another good sign. After all, who would really want to buy a business without detailed knowledge about the industry they are about to enter? Along the same lines, if you know your buyer has experience in a given industry, it means they are more likely to go through with a purchase. If they lack experience in your industry, do they at least seem passionate about the industry? If they seem like they are not asking probing questions, this might mean they are wasting your time.

Are they asking about capital expenditures?

Your prospective buyer will want to know how money is being spent. You can expect them to make sure that major expenses have already been paid for as they will want to make sure they won’t be caught off guard by large pending purchases.

Do you have professional assistance? 

The bottom line is that the more in-depth questions a person is asking, the more serious they are likely to be. Your business broker’s job is to screen prospective buyers. Years of experience doing so helps them know the warning signs that pop up when buyers profess to be interested, but are not likely to go through with the sale. 

When you are trying to sell your business, it is critical that you focus your time wisely. Your brokerage professional will help ensure that you do not waste time working with people who are just kicking the tires. 

Copyright: Business Brokerage Press, Inc.

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