Editor’s note: This article is Part 2 in a 4-part series dedicated to the process of buying and selling a small business. For Part 1, please see our Q2 2023 edition.

In our previous article, we discussed the benefits of purchasing or selling a small business. This quarter, we’re going to begin outlining the initial steps in the acquisition process.

DEFINING YOUR OBJECTIVES

First, it’s important to envision what success looks like. This involves not just determining the type of business and its location, but also understanding the financial metrics that will ensure the business can meet your financial obligations and personal income needs. Key among these metrics are Seller’s Discretionary Earnings (SDE) and cash flow.

SDE is a measure of a business’s earnings before interest, taxes, depreciation, amortization, and owner’s compensation are subtracted. It provides a clear picture of a small business’s profitability and overall financial health. Understanding your target purchase’s SDE will provide an essential perspective on its profitability and the lifestyle it can support.

Cash flow refers to the money flowing into and out of your business each month.

While it might seem similar to profit, the two are distinct. A business can be profitable but still experience negative cash flow if incoming and outgoing payments aren’t synchronized. For instance, if customers are slow to pay their invoices, cash flow can be impacted, even if the company is making a profit. If your personal financial requirements dictate a certain level of income from the business, you’ll need to ensure that the company’s free cash flow can support that level.

Clearly articulated search terms will guide your process, helping you find a business that meets your needs and sets you on the path toward successful entrepreneurship

ASSEMBLE A TEAM

Once your objective is defined, the next step is to assemble a team of professionals to support you throughout the process. Their expertise and insights can be indispensable in avoiding pitfalls and ensuring a smooth transaction. The team typically consists of an accountant, business broker, banker and an attorney.

From the financial corner, an accountant is a crucial team member. They can help you review financial statements, understand the company’s financial health, and assess its worth. They’ll spot any money-related issues that may arise and make sure you’re making a sound investment. Accountants can also guide you on important tax implications and assist with a quality of earnings report and/or business valuation.

A business broker plays the critical role of matchmaker. The broker can help identify potential businesses for sale, provide insights about the market, assist with negotiations, and facilitate communications between you and the seller. A seasoned broker, who has worked on both the buyer’s and seller’s side in many deals, will understand the perspectives of all parties involved and can be instrumental in ensuring the transaction progresses smoothly.

Having a strong relationship with a bank or financial representative will allow you to fully understand your ability to purchase a business before heading down the path of entrepreneurship. A good business banker will understand what size deal you are able to do and help you execute when the time comes to close on a deal. They should also be well versed in lending options, such as small business administration loans that are available to purchasers.

Lastly, an experienced attorney is a pivotal asset in the buying process by providing

legal and strategic guidance. They’ll also help you navigate the initial negotiations as well as final contract language and advocate for favorable or market terms. They can ensure compliance to the maze of laws and regulations that can vary widely by location, and handle vital legal documents like employment and customer agreements. Having an experienced business attorney familiar with your region’s legal landscape is critical to a successful transaction.

Choosing the right team can significantly influence your success. Look for professionals who are not only well-versed in their respective fields but also have extensive experience with small to mid-size business transactions. They should be familiar with the dynamics of the small business community and have a proven track record of working on deals similar to what you envision. This team will be your support network, helping you navigate the complex journey of buying a small business.

THE LETTER OF INTENT

Having your team assembled before finalizing the Letter of Intent (LOI) is crucial. The LOI, while usually non-binding, is an essential document as it outlines the basic terms agreed upon by both parties, like the purchase price, payment structure (e.g., lump sum, partial payment with an earnout, etc.), and due diligence process.

An experienced accountant will ensure the financial arrangements can be supported by the company’s historic financials. They can help determine whether the proposed price and payment structure align with the business’s financial performance and your financial objectives.

For a buyer, a business broker can be particularly helpful during the negotiation of the LOI. Given their knowledge of market trends, and comparable transactions, they can advise on whether the proposed terms are reasonable and competitive. The broker can also facilitate communications between you and the seller during this process, ensuring that discussions remain productive and focused.

A seasoned attorney will ensure the LOI contains market terms, necessary legal clauses like confidentiality and exclusivity, and does not have any “gotcha” terms. They should also advocate for you and identify and advise about identifiable risks. Ensuring the LOI is done correctly also protects from re-trading positions later, which can hurt the relationship between the buyer and seller. This relationship is important because there is often collaborative work that takes place among them before and after the closing.

Having this team in place before finalizing the LOI not only enables you to draw on their expertise during the negotiation of the LOI but also ensures that you’re well- prepared to proceed to the next stages of the transaction. Once the LOI is finalized, you and the seller will have a clear roadmap to guide you towards finalizing the deal, with your team on hand to support you every step of the way.

CLOSING THOUGHTS

Buying a small business is a complex process that requires careful planning and execution. In the early stages, one of the most important things you can do is to define your objectives and assemble a team of professionals to support you. By clearly articulating what you want to achieve and having the right people with the right experience in your corner, you can greatly increase your chances of success.

In next quarter’s article, we’ll get further into the details of what sellers should do to be in the best position possible to sell their business on their terms.

A perfect storm is swirling around the housing market with no end in sight. The Capital Region has a more stable housing market than many other areas of the country, so the mantra of real estate being local is relevant.

But the same adverse factors affect this region as they do every real estate market in the United States. The trifecta of high mortgage rates, low inventory and high prices is here to stay for the foreseeable future. A dark cloud hangs over those wishing to purchase homes, those existing homeowners desiring to sell their homes and even real estate investors. That latter category of buyers has seen purchases plunge 45% in the second quarter of this year compared to the same quarter last year.

There is one word to describe the existing scenario– unaffordability. Mortgage rates during the past eighteen months have been aggressively hiked from rates less than three percent to just south of eight percent. The reality is that there is no hope that affordability will be eased in the foreseeable future. The combination of demand and supply for resale and new housing cannot adapt to normal market fluctuations. Ford and Chevrolet can easily make more cars if demand increases. General Mills can quickly make more cereal. These companies and most others do not have to appear before local planning and zoning boards with hat in hand begging to obtain approvals. And the goal of creativity which often involves the use of planned development districts (PDD’s) is not worth the effort. Density, PDD and PUD are dirty words in the political arena.

Decades of local zoning laws favor single family detached homes, which is inherently the most expensive housing to build. Recent supply chain issues have exacerbated this issue. People who participate in community meetings are hardly representative of their community. They vociferously oppose new development in general and especially moderate and low priced housing which requires density.

Politicians for the most part are focused on preserving their jobs rather than addressing the needs of young people, minorities and the vast majority of potential homebuyers for whom unaffordability has gripped the market. Consequently, both the resale market and new construction have not met the demAnd for housing.

Homeowners who would like to sell their homes for various reasons are not doing so because abandoning 3% or 4% mortgages to buy another home no better than their current homes at interest rates over 7% makes no sense. According to realtor. com, inventory in the largest 50 metro areas is 50% below pre-pandemic levels.

High prices due to demand far exceeding supply are here to stay. Newly built housing inventory is low
and expensive resulting from decades of unrealistic, burdensome and restrictive local regulations. This situation cannot be addressed in either the short term or medium term and probably not in the long term. Resale inventory has plunged due to high interest rates. There is zero chance that monetary policy by the Federal Reserve and fiscal policy by Congress will solve the inflation goal of 2% in the foreseeable future, so interest rates will continue at the highest level in twenty years for months, if not years.

Here are a few sobering statistics relating to the resale housing market. A recent Zillow survey indicated that 90% of mortgage holders had a rate below 6%; 80% less than 5%; 33% less than 3%. Therefore, there is no incentive to trade a current mortgage for a new one at rates exceeding 7%; only 20% of mortgage holders with rates below 5% have plans to sell their homes. Those with rates above 5% are twice as likely to sell within the next three years. 52% of homeowners said they wanted to move, but only 14% thought they could do so within their desired time frame.

Housing and neighborhoods play a critical role in individual and community well-being. Where people live – especially children – is a key component of future well being, including physical and mental health, income and mobility. Housing has been neglected as part of the safety net in the United States. That is because the federal government’s role in housing is superseded by the complex structure of its control by local regulations. It is each community for itself and no other; and many members of the thousands of local regulatory bodies which control housing are only concerned about the next election.

The National Highway Traffic Safety Administration has compiled a number of statistics on how distracted driving affects people nationwide. The Administration reports that a total of 3,522 people were killed in distracted driving accidents in the year 2021. This number is out of nearly half a million total accidents that involved distracted driving! Estimates are that millions of drivers are making use of their phones while driving during daytime hours.

Clearly, we have a major problem here.

DISTRACTED DRIVING CASES IN NEW YORK

New York has specific laws for traffic offenses that involve distracted driving. Under New York law, an officer may stop someone simply because they see them making use of a phone while driving. The offense itself may carry up to 5 points on a person’s license, and has very steep penalties for persons with provisional licenses or learner’s permits. In addition, these laws place significant restrictions on how operators of commercial vehicles may interact with their phones. The penalties for these offenses increase with each offense, and can potentially result in a loss of license if a person accrues enough points.

While these violations are generally considered small traffic offenses and handled in a municipal or state court, the acts that constitute these offenses are often the cause of accidents that result in severe injuries or death. Some minor injuries may be dealt with through New York’s “No Fault” system, but a person – or in some cases, a company – could alsobeheldcivillyliableforinjuries caused by a distracted driving accident. Often, the same evidence used in court to convict a distracted driver on a traffic offense can be used in a civil case to show that the distracted driver was negligent, and that his or her negligence contributed to the accident.

In addition to criminal and traffic matters, an individual who suffers serious injuries as a result of a distracted driving accident is often entitled to compensation. This can be broken

down loosely into economic and non- economic loss.

ECONOMIC LOSS

Economic damages are financial losses associated with an accident that a plaintiff can prove to a court. In distracted driving accidents, these often include medical costs such as hospitalization and/or surgery, as well as costs for follow-up treatment such as physical or occupational therapy. Future medical costs (to the extent that the treatment is reasonably likely) may also be estimated and included in available compensation.

Lost wages are another type of economic damage that typically accompany serious injuries or death from a distracted driving accident. In addition to the period of time an individual is out of work in the immediate wake of an injury, there might be additional missed work due to follow-up care or, in severe cases and cases involving a death, an inability to sustain employment into the future. This loss of income is an often substantial element of damages inalawsuitfollowingadistracted driving accident.

NON-ECONOMIC LOSS

Non-economic damages are losses that can be more challenging to translate into a dollar figure, yet can be substantial. These include categories such as physical pain and suffering, as well as mental anguish. Testimony from physicians, psychiatrists and other experts can help to attribute a monetary figure to these types of losses.

HOW DO WE STOP THIS EPIDEMIC?

Distracted driving is one of the things that keeps us, as parents, up at night. It has to stop. But how?

First, we educate. We believe that we must all make efforts to educate both teenagers and adults about the real world risks associated with distracted driving, because this is not limited to teenagers. Many of us have, at times, been guilty of looking at our phones when we should be focused elsewhere.

We have also joined the organization End Distracted Driving, and have made the commitment to reach as many individuals in New York’s Capital District as possible to address this problem through speeches, presentations,andleadership.

Second, we litigate. Unfortunately, the reality is that some people don’t learn from directed education alone, and need to see real world examples of the risks of distracted driving to appreciate the risks involved. To that end, we represent victims and their families who have been injured or killed by distracted drivers. We will use every tool available to change the behavior and culture surrounding distracted driving, and sometimes, that will mean making examples of those who choose to continue to take this unnecessary risk despite the clear evidence of the danger this behavior presents.

If you have questions about what you can do to help, visit our distracted driving page at www.ignorethephone.com.

McCann’s Pharmacy & Adirondack Compounding is a remarkable multi- generational business with a storied history spanning over 125 years.

Situated at 166 Main Street in Hudson Falls, it was originally established by the visionary Joseph McCann in 1896. Little could Joseph have foreseen that his entrepreneurial legacy would endure for over a century, now being overseen by the capable hands of the third generation of the McCann family, namely Richard, Brian, and Kate. Jason McCann, who serves as the pharmacist, and Matthew McCann represent the promising fourth generation, poised to carry on this legacy.

Though the family members have changed, the business has always kept its welcoming hometown feel. As one of the only compounding pharmacies in the region, the McCann family takes pride in knowing that they are helping their customers and are an integral part of the community.

The clear vision and mission of McCann’s Pharmacy has stood the test of time. For well over 100 years, the McCann family has been ready and available to improve the health and wellness of their customers while also providing exceptional service.

A large part of their success stems from their focus on each individual. That is the cornerstone of their business and an important aspect of the practice of compounding. Compounding is the process of taking various ingredients and combining them to create a unique medication. The technique dates back to earlier days of medicine when a pharmacist would create individual treatments for each patient. As these methods have evolved over the years, McCann Pharmacy still uses the practice today.

Jason McCann is the supervising pharmacist for McCann’s, a position that directs and controls the practice in a registered pharmacy. He attended Siena College in Loudonville, NY for undergraduate studies, after which he enrolled in the accelerated program at the Albany College of Pharmacy. Jason then worked as a traveling pharmacist before returning back home to take the reins of the family business. “Operating a business like this is very challenging,” he explained, “but also very rewarding because we are making a positive difference in our community. We are much more than just pill counters. Our pharmacy has developed great relationships with many practitioners in the area and works in a partnership with them to come up with whatever is needed to meet a patient’s needs.”

COMPOUNDING… AN ART AND SCIENCE.

At McCann’s, members of the McCann family as well as their staff can be found creating new creams, lotions, suppositories, and capsules right in front of the patient. Compounding is important for patients who cannot swallow pills, have allergies to dyes or if traditional medication is not working. Customizing the medication to meet the needs of the patient is where the art and science of compounding meet. This personalized form and dosage of medicine is tailored to each patient’s individual need. “I think the key to our success is our personal approach and our willingness to go the extra mile for our patients which many times does not happen in the chain stores. We also do many things that the other pharmacies don’t do,” Jason said, adding how compounding is just one of their specialized services.

Pain management is an area where the McCann family has found compounding to be helpful to their customers and, by extension, their community. Compounding helps to create additional options for patients; for example, using topical creams so patients can avoid side effects associated with oral medication. Utilizing medications and joining them with creams and lotions allows the patient to directly target the problem area for relief. McCann’s Pharmacy also works with the patient’s medical providers to more precisely locate the source of the pain. In addition to all these benefits, data has shown that medication in the form of a cream or lotion decreases the likelihood of a patient becoming addicted.

…AND PETS TOO!

McCann’s cares for the entire family and knows the importance of keeping pets safe and healthy as well. Animals have a unique ability to separate a pill from cheese or deli meat or any other masking agent and spit it out onto the floor. McCann’s works with local veterinarians to create medicines that are as effective as they are enjoyable. The process starts with making the medication into a liquid suspension. Then, flavors like beef, chicken or fish are added to make it more attractive and palatable for your four-legged companion. These medications can also be customized into topical creams or lotions, making it easier for pets with certain conditions to avoid taking the medication orally.

The key to our success is our personal approach and our willingness to go the extra mile for our patients, which many times does not happen in the chain stores.

– Jason McCann

MCCANN’S CONTINUES TO EVOLVE!

People are taking more medicines than ever before. More than four in ten older adults take five or more prescription medications each day. This is triple the rate from twenty years ago. Patients need to take the medications properly every day, at the right times, and as directed. McCann’s offers a Medicine-On- Time Service. For a $10 monthly service charge, McCann’s will help patients become more organized with their medications and more compliant with their regimens. One of the services that this option provides is synchronizing medications. This allows the various prescriptions for the patient to be filled on the same day. This program also sets up automatic refills and provides free delivery. The medications will come organized, in color-coded calendar cards. This system makes it easy to keep track of medication and maintain a system. The pills are labeled with the patient’s name, the date, the time to take the medication and a list of medications in each cup.

As a multigenerational business, McCann’s Pharmacy is aware of the importance of changing with the times. They have proven to be adaptable and to embrace technological advancements that help their patients. For example, they have an option to refill prescriptions online or over the phone. You can even use an app for that! Most smartphones and tablets have apps available to customers that are simple and easy to use as well as free. Go to the app store and search ‘RefillRX’. Download the app and follow the instructions for selecting a pharmacy. This allows the patient to enter refills and select if they will be picking up the medicine or would instead like free delivery.

Jason and his family hope that the next generation carries on the family tradition. However, he is aware that maintaining that tradition is ultimately their choice, so he looks to what previous generations have done for guidance. “I’m hoping for my son or daughter (or both!) to follow in my footsteps and decide to go into the pharmacy business to carry us on,” he explained. “But I’ll do the same as my father did and never put any pressure on them. It’s totally their decision.”