-
Sellers should find out the loan
value of the fixtures, equipment
and machinery prior to a sale.
Many buyers will count on using
it for loan or collateral
purposes. No one wants to find
out at the last minute that the
value of the machinery won't
support the debt needed to put
the deal together.
-
Sellers should resolve all
litigation and environmental
issues before putting the
company on the market.
-
Sellers should be flexible about
any real estate involved. Most
buyers want to invest in the
business, and real estate
usually doesn't make money for
an operating company.
-
Sellers should be prepared to
accept lower valuation multiples
for lack of management depth,
regional versus national
distribution, and a reliance on
just a few large customers.
-
If a buyer indicates that he or
she will be submitting a Letter
of Intent, or even a Term Sheet,
the seller should inform them
up-front what is to be included:
-
Price and terms
-
What assets and liabilities
are to be assumed, if it is
to be an asset purchase
-
Lease or purchase of any
real estate involved
-
What contracts and
warranties are to be assumed
-
Schedule for due diligence
and closing
-
What employee contracts
and/or severance agreements
the buyer will be
responsible for
-
Non-negotiable items should be
pointed out early in the
negotiations.
-
The sale of a company usually
involves three inconsistent
objectives: speed,
confidentiality and value.
Sellers should pick the two that
are most important to them.
-
A PricewaterhouseCoopers survey
of more than 300 privately held
U.S. companies that were sold or
transferred pointed out the most
common things a company can do
to improve the prospects of
selling:
-
Improve profitability by
cutting costs
-
Restructure debt
-
Limit owner's compensation
-
Fully fund company pension
plan
-
Seek the advice of a
consultant
-
Improve the management team
-
Upgrade computer systems
-
Sellers should determine
up-front who has the legal
authority to sell the business.
This decision may lie with the
board of directors, a majority
stockholder, and a bank with a
lien on the business, etc.
-
Partner with professionals. A
professional intermediary can be
worth his or her weight in gold.
Copyright BBP 2003
-
Do have all of your business
documentation ready. Everything
starts with it.
-
Don't underestimate the value of
your business. Owners of
privately held businesses
usually minimize profits to
lower taxes. The financial
statements may not reflect the
real value of the business.
-
Don't overprice your business.
The right buyer who is willing
to pay the right price may not
even want to consider your
business because the price is
way out of line.
-
Do offer as favorable terms as
you can. Buyers, even good ones,
want to leverage the sale as
much as possible.
-
Don't use a "magic" formula to
value your business. Your
business is unique, different
from every other business out
there.
-
Don't wait too long to sell. The
best time to sell is when
business is good.
-
Don't wait until poor health or
a downturn occurs - sell from
strength!
-
Do allow at least six months to
sell your business. The larger
the business, the more time you
should allow.
-
Do use a business broker. They
can take the mystery out of
determining the selling price,
prepare a marketing plan of
action to maximize the selling
price, handle all of the
details, and leave you to do
what you do best -- continue to
run your business.
Copyright BBP 2003
If you've gone this far, then
selling your business has aroused
enough curiosity that you are taking
the first step. You don't have to
make a commitment at this point; you
are just getting informed about what
is necessary to successfully sell
your business. This section should
answer a lot of your questions and
help you through the maze of the
process itself.
Question 1
The first question almost every
seller asks is: "What is my business
worth?" Quite frankly, if we were
selling our business that is the
first thing we would want to know.
However, we're going to put this
very important issue off for a bit
and cover some of the things you
need to know before you get to that
point. Before you ask that question
you have to be ready to sell for
what the market is willing to pay.
If money is the only reason you want
to sell, then you're not really
ready to sell.
*Insider Tip:
It doesn't make any difference
what you think your business is
worth, or what you want for it. It
also doesn't make any difference
what your accountant, banker,
attorney, or best friend thinks your
business is worth. Only the
marketplace can decide what its
value is
Question 2
The second question you have to
consider is: Do you really want to
sell this business? If you're really
serious and have a solid reason(s)
why you want to sell, it will most
likely happen. You can increase your
chances of selling if you can answer
yes to the second question: Do you
have reasonable expectations? The
yes answer to these two questions
means you are serious about selling.
The
First Steps
Okay, let's assume that you have
decided to at least take the first
few steps to actually selling your
business. Before you even think
about placing your business for sale
there are some things you should do
first. The first thing you have to
do is to gather information about
the business.
Here's a checklist of the items
you should get together:
-
Three years' profit and loss
statements
-
Federal Income tax returns for
the business
-
List of fixtures and equipment
-
The lease and lease-related
documents
-
A list of the loans against the
business (amounts and payment
schedule)
-
Copies of any equipment leases
-
A copy of the franchise
agreement, if applicable
-
An approximate amount of the
inventory on hand, if applicable
-
The names of any outside
advisors
Notes:
If you're like many small
business owners you'll have to
search for some of these items.
After you gather all of the above
items, you should spend some time
updating the information and filling
in the blanks. You most likely have
forgotten much of this information,
so it's a good idea to really take a
hard look at all of this. Have all
of the above put in a neat, orderly
format as if you were going to
present it to a prospective
purchaser. Everything starts with
this information.
Make sure the financial
statements of the business are
current and as accurate as you can
get them. If you're half way through
the current year, make sure you have
last year's figures, and tax
returns, and also year-to-date
figures. Make all of your financial
statements presentable. It will pay
in the long run to get outside
professional help, if necessary, to
put the statements in order. You
want to present the business well
"on paper". As you will see later,
pricing a small business usually is
based on cash flow. This includes
the profit of the business, but
also, the owner's salary and
benefits, the depreciation, and
other non-cash items. So don't panic
because the bottom line isn't what
you think it should be. By the time
all of the appropriate figures are
added to the bottom line, the cash
flow may look pretty good.
Prospective buyers eventually
want to review your financial
figures. A Balance Sheet is not
normally necessary unless the sale
price of your business would be well
over the $1 million figure. Buyers
want to see income and expenses.
They want to know if they can make
the payments on the business (more
on this later), and still make a
living. Let's face it, if your
business is not making a living wage
for someone, it probably can't be
sold. You may be able to find a
buyer who is willing to take the
risk, or an experienced industry
professional who only looks for
location, etc., and feels that he or
she can increase business.
*Insider Tip
The big question is not really
how much your business will sell
for, but how much of it can you
keep. The Federal Tax Laws do
determine how much money you will
actually be able to put in the bank.
How your business is legally formed
can be important in determining your
tax status when selling your
business. For example: Is your
business a corporation, partnership
or proprietorship? If you are
incorporated, is the business a C
corporation or a sub-chapter S
corporation? There are some new tax
rules, effective January 1, 2000,
that impact certain businesses on
seller financing. The point of all
of this is that before you consider
price or even selling your business
it is important that you discuss the
tax implications of a sale of your
business with a tax advisor. You
don't want to be in the middle of a
transaction with a solid buyer and
discover that the tax implications
of the sale are going to net you
much less than you had figured.
Copyright BBP 2003
You've made the big decision to
put your business on the market.
Your reasons for selling are valid,
carefully-considered, and "good" -
the kind that won't make a
prospective buyer shy away. Now, you
may tell yourself, comes the fun
part. You'll come up with a price -
maybe a little high, but why not? -
and let gut instinct (an attribute
common to successful business
owners) lead the way.
Wait just a minute. Or maybe a
quarter of an hour; however long it
takes you to bone up on your
negotiation skills with the
following steps as a guide. Being a
smart negotiator is tantamount to
effecting the successful sale of
your business.
Gather Your Forces
The first step is to engage the
help of a business broker
professional. He or she understands
the sales negotiation process as
well as tactics for marketing the
business. Before sitting down with
your business broker, however, you
should gather the following
information: profit and loss
statements (for three years),
current federal income tax returns,
a list of fixtures and equipment,
copies of equipment leases (if any),
the lease and any lease-related
documents, a copy of your franchise
agreement (if applicable), lists of
loans (if applicable), with amounts
and payment schedule, an approximate
tally of inventory on hand, and the
names of any outside advisors
(attorney, accountant, etc.) you
plan to consult.
Be Market-Smart
It's vital to have a clear and
realistic notion about the value of
your business. Pricing your business
intelligently is as important as
impressive financial records. Your
business broker will apply
industry-tested valuation methods,
including ratios based on the sales
of similar businesses, as well as
the historical data that most
closely matches your type of
business. He or she will also
incorporate intangibles to insure
that the business will not be
underpriced. At the same time, your
broker will make sure you understand
how the price is dictated by the
marketplace and that realistic
pricing is an absolute must. Most
buyers won't wait for an outsized
price to drop - they will just go
somewhere else.
Know Your Buyer
Finding the right buyer may be
more important than getting that
extra-high asking price. Your
business broker will determine the
right buyer for the right business,
focusing on those prospects who are
financially qualified and are
genuinely interested in your type of
business. It's important also to
know something about the bargaining
power of the buyer and to discover
early on how he or she plans to
finance the purchase of your
business. Your business broker will
do that and more: he or she will
anticipate the buyer's concerns and
counsel you about being up-front
about any problems that might make a
buyer suspicious and therefore
unnecessarily adversarial during the
negotiation process. Steeped in
knowledge about negotiating price,
terms and other vital aspects of the
sale, the broker will guide you each
step of the way. During the early
stages, while the buyer is still
considering making an offer, the
broker is the ideal person to follow
up and keep the deal running
smoothly. Working alone, you could
lose bargaining effectiveness by
doing the follow-up yourself. And,
in general, having someone else
negotiate on your behalf is the
smartest way to go. The "middle man"
can get your thoughts across,
keeping you at a distance from the
words themselves.
Be Flexible
In negotiating the sale of your
business, you need to keep the ball
rolling once an offer has been
presented. Study it closely, and
don't automatically despair. Just
because you didn't get your asking
price doesn't mean that the offer
has nothing to commend it. It may
have other points to offset what you
feel is a low figure, such as - if
the deal is to be seller-financed -
higher payments or interest, a
consulting agreement, more cash than
you anticipated, or the promise of a
buyer relationship that will make
life easier. In evaluating an offer,
take the long view and look for the
ways in which the offer just might
accomplish your objectives. Above
all, don't think in terms of
"punishing" the buyer because of a
low offer. This is the worst reason
for rejecting an offer - and
certainly a self-defeating one for
you.
Beef Up Bargaining Power
The best negotiating weapon is to
have options available. For the
seller, the mightiest one is lack of
desperation. With any luck, you have
not waited too long to sell and your
business is sound. Carry this a step
further: be sure, in preparing to
sell, that you don't let the
business slip. It's important that
prospective buyers see your business
at its best - bustling, and showing
no signs of neglect. You should, for
example, keep normal operating
hours, repair signage and other
first-impression areas of the
business, repair or remove
non-operating equipment, remove
items not included in the sale,
maintain inventory at constant
levels. Make it obvious that you
have not been forced to sell, and
that - if necessary - you could
refuse all offers and carry on the
operation of your business. This may
be the last thing you want to do,
having made the hard decision to
sell, but the buyer won't know that.
Master the Art of Good Timing
Timing is crucial to the
successful sale of a business. Any
deal has a shelf-life, and it will
go stale if it sits around too long.
On the other hand, sometimes ideas
need extra time to jell - and people
sometimes need a little
time-and-space to be more objective
about their own positions. Your
business broker will keep the
process moving at the proper pace.
He or she will also provide or offer
advice about the specialized
contracts and forms necessary for
the completion of the sale.
In negotiating the sale process,
you will benefit many times over
from the guidance of a business
broker professional. The business
broker represents you, the seller,
and works toward completing the
transaction in a reasonable amount
of time and at a price and terms
acceptable to you. The broker will
also present and assess offers and,
at the appropriate juncture, he or
she can help in structuring the sale
and negotiating its successful close
- helping to create a win-win
situation for everyone involved.
Copyright BBP 2003
How long does it take to sell my
business?
It generally takes, on average,
between five to eight months to sell
most businesses. Keep in mind that
an average is just that. Some
businesses will take longer to sell,
while others will sell in a shorter
period of time. The sooner you have
all the information needed to begin
the marketing process, the shorter
the time period should be. It is
also important that the business be
priced properly right from the
start. Some sellers, operating under
the premise that they can always
come down in price, overprice their
business. This theory often
"backfires," because buyers often
will refuse to look at an overpriced
business. It has been shown that the
amount of the down payment may be
the key ingredient to a quick sale.
The lower the down payment,
generally 40 percent of the asking
price or less, the shorter the time
to a successful sale. A reasonable
down payment also tells a potential
buyer that the seller has confidence
in the business's ability to make
the payments.
Why Is Seller Financing So Important
To The Sale Of My Business?
Surveys have shown that a seller,
who asks for all cash, receives on
average only 70 percent of their
asking price, while sellers who
accept terms receive on average 86
percent of their asking price.
That's a difference of 16 percent!
In many cases, businesses that are
listed for all cash just don't sell.
With reasonable terms, however, the
chances of selling increase
dramatically and the time period
from listing to sale greatly
decreases. Most sellers are unaware
of how much interest they can
receive by financing the sale of
their business. In some cases it can
greatly increase the amount
received. And, again, it tells the
buyer that the seller has enough
confidence that the business can,
indeed, pay for itself.
What Happens When There is a Buyer
for My Business?
When a buyer is sufficiently
interested in your business, he or
she will, or should, submit an offer
in writing. This offer or proposal
may have one or more contingencies.
Usually, they concern a detailed
review of your financial records and
may also include a review of your
lease arrangements, franchise
agreement (if there is one) or other
pertinent details of the business.
You may accept the terms of the
offer or you may make a
counter-proposal. You should
understand, however, that if you do
not accept the buyer's proposal, the
buyer can withdraw it at any time.
At first review, you may not be
pleased with a particular offer;
however, it is important to look at
it carefully. It may be lacking in
some areas, but it might also have
some pluses to seriously consider.
There is an old adage that says,
"The first offer is generally the
best one the seller will receive."
This does not mean that you should
accept the first, or any offer --
just that all offers should be
looked at carefully.
When you and the buyer are in
agreement, both of you should work
to satisfy and remove the
contingencies in the offer. It is
important that you cooperate fully
in this process. You don't want the
buyer to think that you are hiding
anything. The buyer may, at this
point, bring in outside advisors to
help them review the information.
When all the conditions have been
met, final papers will be drawn and
signed. Once the closing has been
completed, money will be distributed
and the new owner will take
possession of the business.
What Can I Do To Help Sell My
Business?
A buyer will want up-to-date
financial information. If you use
accountants, you can work with them
on making current information
available. If you are using an
attorney, make sure they are
familiar with the business closing
process and the laws of your
particular state. You might also ask
if their schedule will allow them to
participate in the closing on very
short notice. If you and the buyer
want to close the sale quickly,
usually within a few weeks, unless
there is an alcohol or other license
involved that might delay things,
you don't want to wait until the
attorney can make the time to
prepare the documents or attend the
closing. Time is of the essence in
any business sale transaction. The
failure to close on schedule permits
the buyer to reconsider or make
changes in the original proposal.
What Can Business Brokers Do - And,
What Can't They Do?
Business brokers are the
professionals who will facilitate
the successful sale of your
business. It is important that you
understand just what a professional
business broker can do -- as well as
what they can't. They can help you
decide how to price your business
and how to structure the sale so it
makes sense for everyone -- you and
the buyer. They can find the right
buyer for your business, work with
you and the buyer in negotiating,
and every step of the way until the
transaction is successfully closed.
They can also help the buyer in all
the details of the business buying
process.
A business broker is not,
however, a magician who can sell an
overpriced business. Most businesses
are saleable if priced and
structured properly. You should
understand that only the marketplace
can determine what a business will
sell for. The amount of the down
payment you are willing to accept,
along with the terms of the seller
financing, can greatly influence not
only the ultimate selling price, but
also the success of the sale itself.
Copyright BBP 2003
"Exit strategies may allow you to
get out before the bottom falls out
of your industry. Well-planned exits
allow you to get a better price for
your business." From: Selling Your
Business by Russ Robb, published by
Adams Media Corporation
Whether you plan to sell out in
one year, five years, or never, you
need an exit strategy. As the term
suggests, an exit strategy is a plan
for leaving your business, and every
business should have one, if not
two. The first is useful as a guide
to a smooth exit from your business.
The second is for emergencies that
could come about due to poor health
or partnership problems. You may
never plan to sell, but you never
know!
The first step in creating an
exit plan is to develop what is
basically an exit policy and
procedure manual. It may end up
being only on a few sheets of paper,
but it should outline your thoughts
on how to exit the business when the
time comes. There are some important
questions to wrestle with in
creating a basic plan and
procedures.
The plan should start with
outlining the circumstances under
which a sale or merger might occur,
other than the obvious financial
difficulties or other economic
pressures. The reason for selling or
merging might then be the obvious
one - retirement - or another
non-emergency situation. Competition
issues might be a reason - or
perhaps there is a merger under
consideration to grow the company.
No matter what the circumstance, an
exit plan or procedure is something
that should be developed even if a
reason is not immediately on the
horizon.
First, any existing agreements
with other partners or shareholders
that could influence any exit plans
should be reviewed. If there are
partners or shareholders, there
should be buy-sell agreements in
place. If not, these should be
prepared. Any subsequent acquisition
of the company will most likely be
for the entire business. Everyone
involved in the decision to sell,
legally or otherwise, should be
involved in the exit procedures.
This group can then determine under
what circumstances the company might
be offered for sale.
The next step to consider is
which, if any, of the partners,
shareholders or key managers will
play an actual part in any exit
strategy and who will handle what. A
legal advisor can be called upon to
answer any of the legal issues, and
the company's financial officer or
outside accounting firm can develop
and resolve any financial issues.
Obviously, no one can predict the
future, but basic legal and
accounting "what-ifs" can be
anticipated and answered in advance.
A similar issue to consider is
who will be responsible for
representing the company in
negotiations. It is generally best
if one key manager or owner
represents the company in the sale
process and is accountable for the
execution of the procedures in place
in the exit plan. This might also be
a good time to talk to an M&A
intermediary firm for advice about
the process itself. Your M&A advisor
can provide samples of the documents
that will most likely be executed as
part of the sale process; e.g.,
confidentiality agreements, term
sheets, letters of intent, typical
closing documents. The M&A advisor
can also answer questions relating
to fees and charges.
One of the most important tasks
is determining how to value the
company. Certainly, an appraisal
done today will not reflect the
value of the company in the future.
However, a plan of how the company
will be valued for sale purposes
should be outlined. For example, tax
implications can be considered: who
should do the valuation, are any
synergistic benefits outlined that
might impact the value, how would a
potential buyer look at the value of
the company?
An integral part of the plan is
to address the due diligence issues
that will be a critical part of any
sale. The time to address the due
diligence process and possible
contentious issues is before a sale
plan is formalized. The best way to
address the potential "skeletons in
the closet" is to shake them at this
point and resolve the problems. What
are the key problems or issues that
could cause concern to a potential
acquirer? Are agreements with large
customers and suppliers in writing?
Are there contracts with key
employees? Are the leases, if any,
on equipment and real estate current
and long enough to meet an
acquirer's requirements?
The time to address selling the
company is now. Creating the basic
procedures that will be followed
makes good business sense and,
although they may not be put into
action for a long time, they should
be in place and updated
periodically.
Copyright BBP 2003
If you're considering selling
your business, and you are employing
a professional business broker or
intermediary, it's imperative to be
absolutely open with him or her.
This is not the time for secrecy --
or even for subtlety, especially
when it comes to problems. If you've
been having trouble with your lease,
one of your best customers or your
fixtures and equipment, spell it
out! Any one of these "sleeping
dogs" is bound to wake up sometime
during the process. After the first
growl comes the bite. The sale will
get buried deeper than last year's
bone. And the buyer, scared off by
the ruckus, will have long since
disappeared.
Tell your broker all there is to
know prior to the beginning of the
marketing effort. Your broker and
the buyer are aware that there is no
such thing as a perfect business,
and buyers are much more likely to
deal with the problems of your
business during the decision-making
process rather than after they have
decided to buy.
And it's not just the sale that's
at stake. Concealing a problem or
defect that adversely affects the
business can lead to litigation and
years in court. It's not worth it.
Problems and defects don't mean your
business won't command an attractive
price. Your professional business
broker is prepared to deal with
these issues and give you competent
advice.
Some sellers try to hide the
problems of their business and hope
the sleeping dog never wakes up.
You'd be well-advised to get him on
a good, strong leash instead of
letting him "lie."
The Lease - Buyer and Seller Beware!
The lease is an important issue
in many cases, a major issue.
Whether you are buying or selling a
business, it's important to
understand that if the real estate
is not included, the lease is a
critical element of the sale
process. Other than owning the real
estate, there are only three ways
the transfer of the business can be
handled:
-
A new lease - A new lease can be
entered into by the lessor and
the new tenant, the buyer.
-
A sub-lease - This can be
negotiated between the seller
and the buyer. In a sub-lease,
the seller of the business
becomes the landlord. The
existing landlord, who most
likely is also the owner of the
property, must always approve a
sub-lease. In a few cases, the
existing lease provides that the
tenant has the right to
sub-lease.
-
The assignment of lease - This
is the most common method of
transferring the lease. The
seller simply assigns the
existing lease to the buyer. The
buyer assumes responsibility for
the lease, and in most cases,
the landlord must approve the
assignment. Sellers should be
aware, however, that in most
cases, they are still
responsible for the terms of the
lease.
Sellers should take a look at the
lease at their business and ask
themselves the following questions:
-
Is the lease long enough and the
rent low enough to make the
business attractive to a
potential buyer?
-
Is the rent consistent with
similar businesses in the area?
-
Are there any terms or
conditions of the lease that
might be unfavorable in the eyes
of a possible buyer?
-
Most importantly, are you on
good terms with the landlord -
and can the lease be transferred
without any hitches?
If there could be any problems
with the lease, or the landlord,
it's best to resolve them prior to
selling the business. Your business
broker professional is a good source
to review the lease and its terms
from a business sale perspective.
Copyright BBP 2003
The buyer and seller have both
agreed on the sale price and the
terms of the transaction. Everyone
appears satisfied. As the day of
closing approaches, the seller seems
less cooperative and more
apprehensive about selling the
business. Ultimately, the sale falls
apart. Who's to blame? The buyer was
ready, willing and able to buy the
business, and the seller appeared
ready to sell.
The decision to sell one's
business is a serious step - a
milestone in one's life, both
personally and professionally.
Selling represents the end of
ownership. It means, for many
sellers, heading into uncharted
waters. For others, it is the end of
a dream -- they built the business,
or perhaps even started it. A part
of them will always be in the
business. So, to the seller, selling
the business, represents the end of
something and the beginning of
something else - pretty dramatic
stuff. Often, selling the business
means parting with one's biggest
asset - the bulk of one's wealth.
The business can be a very personal
thing, like a child is a part of the
family.
Some sellers, in the middle of
the selling process, suddenly
realize just how important the
business is in their life. Others
realize that after the sale they
will have nothing to get up for on a
daily basis. This sounds good at
first, but upon reflection it really
doesn't sound good at all. These are
some of the reasons sales of
privately-held businesses may not
close. Sellers won't admit their
reason, so they masquerade the real
reason behind another.
Perhaps, one of the most critical
elements necessary for the
successful sale of a privately-held
business is the willingness of the
seller to sell and move on. In some
cases, the owner and the business
have grown into one - the business
becoming his or her alter ego.
Before sellers decide to sell, they
should make sure they can separate
themselves from the business and are
prepared to leave it. Sellers should
not attempt to sell before they are
ready!
Copyright BBP 2003
The cliché is that the key to
business success is: location -
location - location. If you own a
business in which the location is an
important reason for the success of
the business, and you are
considering selling, then the lease
is a very critical issue in the
sale. The time to deal with this is
not in the middle of a sale, but
before you even place the business
on the market.
Business brokers can recite many
a story where, on contacting the
landlord in the midst of a pending
sale, they are told that the
landlord has other plans for the
space when the lease is up next
month. Fortunately this is not a
common occurrence, but if the lease
is an issue, the time to deal with
it is now.
The Steps In Dealing with the Lease
The first step is finding the
lease.
The second step is to read it.
The third step is to visit the
landlord and work out any lease
issues.
Before placing your business on
the market, you need to see where
you stand on the all-important issue
of the lease. After reviewing it,
set up an appointment to visit the
landlord. If there are only a few
years left on the lease, see about
getting an extension. If you have
more than that left, still check
into getting an option to renew the
lease at the expiration of the
present term. After all, if the
location works, the longer the lease
the better in most cases. It might
also be a good time to see if the
landlord has ever considered selling
the premises. By owning the
property, you will never have to
worry about leases again.
If location is not important and
the business is such that moving it
is a non-issue, then obviously the
lease is not important. However, if
the business is one that is
dependent on its existing location,
then the lease issue is crucial. The
time to iron out any details is
before the business is placed on the
market.
Copyright BBP 2003
Many people who are selling their
business think that once they find a
buyer the business is sold.
Unfortunately, the real work is just
beginning. Once a buyer is
interested, there are the inevitable
questions that must be answered.
After the questions are answered and
the buyer has satisfied himself or
herself that the financial aspects
of the business are satisfied, the
buyer is probably ready to make an
offer.
An offer is prepared and it
generally contains contingencies or
conditions on which the offer is
subject to, in addition to offering
the price and terms under which the
buyer is prepared to pay. Assuming
the price and terms are acceptable
to the seller, the next step is for
the seller to do what is necessary
to satisfy the contingencies. These
can be as varied to the buyer's
reviewing all of the seller's
financial books and records, a
serious look at the lease and its
terms to a requirement that the
seller pave the parking lot or redo
the rest rooms.
Definitions
Offer - an
expression of willingness to
purchase a property [business] at a
specific price [and terms].
Contingency Clause
-- see Condition
Condition(s) -
provision(s) in a contract that some
or all terms of the contract will be
altered or cease to exist upon a
certain event.
Conditional Offer
- purchase contract
tendered to the seller that
stipulates one or more requirements
to be satisfied before the purchaser
is obligated to buy.
Dictionary of Real Estate Terms,
published by Barron's Real Estate
Guides
The first task for the seller is
to accept the price and terms then
review the contingencies to insure
that they are reasonable and
acceptable. If the price, terms or
contingencies are not acceptable
then a counter-offer is prepared and
the terms that are acceptable to the
seller presented to the buyer. Once
the parties agree upon all of these
items, then the job of satisfying
the buyer's contingencies is begun.
A time period in which all of this
must be done is usually specified in
the offer. If such a time period was
not specified, the buyer could take
his or her "own sweet" time before
approving - or not. The seller
obviously has to furnish the
materials and information necessary
for the seller to satisfy himself or
herself.
If the buyer is satisfied that
everything is as represented, he or
she signs what is termed a
Contingency Removal form. If
everything is not satisfactory to
the buyer, then the offer can be
renegotiated or the sale falls apart
and the buyer's deposit is returned
and the seller is now back to square
one!
Unfortunately, a lot of time can
elapse between the offer and
acceptance and the buyer deciding to
move forward. Time is the essence of
the deal and the longer it goes the
more likely that serious problems
can develop. If these problems are
not addressed promptly, the pending
sale can fall apart and then the
seller must then look for another
buyer and begin the process anew.
The professional broker is aware of
all of this and can greatly assist
the seller in making sure that only
serious and committed buyers begin
the process.
Let's assume that the buyer and
seller are in agreement on price and
terms. Now comes the task of
gathering all of the information
necessary for an escrow company or
closing attorney to draw the
necessary paperwork. The seller must
also gather the lease information,
insurance data, equipment lists,
inventory information and everything
else necessary to close the sale.
If the buyer is using outside
financing, then the seller, along
with the buyer, must gather all
sorts of financial date to submit to
the lender. There are also the
various representations and
warranties the must be reviewed -
and approved, by the parties
involved.
As one can see, the path from
finding a buyer to the closing of
the sale is an arduous one and
fraught with problems every step of
the way. Only an experienced
professional business broker can
guide both parties through the maze
and insure that every step is
addressed and covered
satisfactorily.
Sellers - Here's How Selling Your
Business Can be Made Easier
If you're considering selling
your business consulting with a
professional business broker is your
first step. They can assist in all
of the areas mentioned in this
newsletter. In addition they can do
the following:
-
Greatly increase the number of
potential buyers through their
own databases and the various
Web sites available to them.
-
Help in pricing the business so
it will be competitive in the
marketplace.
-
Will keep you advised on market
reaction.
-
Present only qualified and
serious buyer prospects.
-
Handle the details so you can
spend your time operating your
business.
-
Coordinate all of the paperwork
so the sale can be expedited
quickly and easily.
Copyright BBP 2003
Some recent studies have revealed
that the time it takes to sell a
small business has increased
dramatically over the years. For
example, in 1978 the average time it
took was only 57 days. In 2001, the
average length of time was 225 days.
That means that it now takes almost
four times as long to sell a
business as it did 23 years ago. The
intervening years show the gradual
increase in the time necessary to
sell a small business. Why has this
time factor increased? Here are just
a few of the reasons:
-
Buyers are better educated and
informed
-
Buyers are more reluctant to
make that leap of faith so
necessary to go into business
for oneself
-
Buyers require more information
from a seller
-
Buyers and sellers use more
outside advisors
-
Requirements for the closing
have increased due to more
governmental regulations
There are obviously additional
reasons depending on the nature of
the business, complexity of the
deal, buyer and seller cooperation
and the time schedule of the
advisors in the transaction.
Sellers can assist in the process
by gathering all of the information
prior to going to market. For
example, such items as: an equipment
list, lease information, tax data,
list of licenses and permits, any
existing loans, leases and equipment
debt, plus any other documentation
that a prospective buyer might want
to review, or any documents that
might be helpful in drawing closing
papers.
In this age of technology, it is
difficult to believe that it
actually takes longer to close the
sale of a business than it did 23
years ago. In this age of fax
machines, Email, computer
technology, cell phones, it must be
a people problem. Buyers and sellers
can help by making sure they are
proceeding as quickly as prudently
possible, providing the necessary
documentation on a timely basis,
making sure their outside advisors
do the. paper work expeditiously. A
business broker moves this process
along by making sure that everyone
involved is doing what is necessary
to get the deal done. Everyone
involved in the transaction must
remember that time is of the
essence.
Copyright BBP 2003
Is This the 'Right Time' for You?
If you have made the decision to
sell your business, the wisest first
move in to contact a qualified
business broker professional, who
can . . .
-
Advise you on pricing and
structuring the sale of your
business.
-
Prepare the marketing strategy,
using professional resources.
-
Determine the right buyer for
your particular business.
-
Educate buyers in the
business-buying process.
-
Keep you informed about market
reaction.
-
Present offers and point out
strengths and weaknesses.
Copyright BBP 2003
If you have made the decision to
sell your business, the wisest first
move in to contact a qualified
business broker professional, who
can . . .
-
Advise you on pricing and
structuring the sale of your
business.
-
Prepare the marketing strategy,
using professional resources.
-
Determine the right buyer for
your particular business.
-
Educate buyers in the
business-buying process.
-
Keep you informed about market
reaction.
-
Present offers and point out
strengths and weaknesses.
Copyright BBP 2003
"Whatever the reason, there
should be something other than
dollars that motivates you to
explore a sale. After all, if it
weren't more valuable to own the
business than to sell it, no one
would ever buy it."
Mike Sharp, M&A Today, November 2002
The owner of a successful company
is considering selling, thinking now
may be a good time. However, he is
told by an outside advisor that
business is good and that if he
holds on to it for several more
years he will get a much higher
price. On the surface, this makes a
lot of sense. After all, when an
advisor tells the owner that if he
keeps it for three more years and
the price will double, that's a
terrific incentive to keep plugging
away. However, there is another side
to what would appear to be sound
advice.
The most dramatic downside would
be that the business could go
downhill rather than uphill as the
advisor predicted. Although no one
can predict what the economy will
do, there are a couple of possible
scenarios. The industry itself might
be impacted by some new technology
or other companies might enter the
field. It is also possible that the
owner, having considered selling, is
just worn out and can't or won't
maintain the zeal necessary to keep
the business competitive. After all,
after many years of running the
business, the owner may be tired,
"burnt out," or just plain ready to
slow down.
There are other areas to consider
as well. For example, equipment may
need upgrading or replacement,
products or services may be aging
and need revitalizing. Additional
capital may be necessary to keep the
company up-to-date and competitive.
Leases may be expiring and long
obligations required to renew them.
In short, what originally looked
like a good strategy to increase the
selling price, has backfired. The
costs of continuing to operate the
business have increased
dramatically, the owner has lost
interest - and now the company is
offered for sale.
The right time to sell may be
when the company's industry, product
line or service is at or near the
height, of its success. There comes
a point when the business or its
industry is peaking and everyone
wants "in" - and that is the time to
sell. There is the old story that
the time to sell the buggy whip
business was just before Ford
started producing the Model-T. As
they say, "timing is everything."
The right time might be when the
company is at the top of its game.
Sales are robust and growing, the
balance sheet is squeaky clean, and
the employees are productive and
happy. Another good time to sell is
when there is a solid buyer who is
seriously interested in purchasing
the company, or perhaps, when a
manager within the company is ready
to take over in a buy-out of some
form.
So, when is the right time to
sell? Perhaps when the owner first
decided it might be time. However,
there is really no best time to
sell. No one can tell the owner when
it is the time to sell. Outside
advisors are well intended, but no
one knows when it is time except the
owner. And, when it's time - it's
time!
Copyright BBP 2003
Selling--a product, a service, a
concept--is the backbone of every
business. After careful background
work, such as prospecting for and
qualifying buyers, comes the big
moment: the sales presentation.
Although most independent business
people know the importance of
presentation in successful selling,
day-to-day operational demands can
dull even the sharpest technique. To
keep your selling talents
well-honed, check the essentials in
these five guidelines:
1. Put Your Best Foot Forward . . .
In this era of "Casual Friday"
dressing, it never hurts to remember
the obvious: dress for success. Even
if you know your prospect will be
wearing jeans and a
sweatshirt--you'll make your sales
presentation in a suit or as close
to a suit as you can get. (For men,
a sport coat could be substituted
for the suit coat; for women, the
suit could be replaced by a dark,
simple dress.) Check that your
briefcase is well-organized--before
you open it with a flourish, the
prospect looking on!
2. Start With a Light Touch . . .
Today's consumers are not
impressed by blockbuster tactics. In
addition to the right product or
service, they are looking for the
human angle: honesty, dependability,
and--very important to the first
moments of the presentation--a
common bond. If you are making your
sales presentation at the prospect's
place of business, look around and
find something to comment on. (If
the prospect has come to you, revise
accordingly.) Photographs and
diplomas on walls are good bets, but
avoid the too-personal ("Those your
beautiful wife and kids?"). Aim for
something to indicate you are a
kindred spirit ("I see you're a
Purdue graduate . . . how are those
Boilermakers doing this year?"). The
caution here: don't talk too long in
this vein and don't lose sight of
its main purpose: to relax the
prospect--and yourself.
3. Ask the Right Questions . . .
You may have thought you had the
prospect pegged before the sales
call, but now you are in a position
to find out more. Don't be afraid to
ask the right--and sometimes
hard--questions. To avoid wasting
time and effort on both sides, there
are at least two issues you need to
get on the table right away: money
and authority.
First, the money: does the
prospect have the financial
resources available to pay for your
product/service? Of course, your
question will be couched more in
these terms: "What area are we
dealing with here, dollarwise?" or
(more formally) "Let's talk about
the budget you have in mind for this
type of project." Anyone who is
seriously interested in buying will
not be offended by the mention of
money. The truly worthwhile prospect
will be expecting such a discussion,
in fact.
Next, comes the question about
authority: is this prospect the
person with decision-making power?
You might put this more delicately
as follows: "It's good of you to
give me this chance to talk about
our product [service]. Would you
like anyone else to be in on this,
or--assuming you like what you
see--can you yourself make the
decision to go with us?" If there
are other parties needed, tactfully
request another meeting (being sure
to include this prospect out of
courtesy) and begin to wind the
sales call down.
Answers to either or both of
these questions might be evasive.
Don't get road-blocked by vague
answers and promises. If, for
example, the vague answer is: "Let
us think about it," you might
answer: "What specifically will you
be focusing on?" If an answer is
"This is very impressive," you could
ask (with a certain amount of
humor): "Impressed enough for me to
take that order right now?"
4. Shine the Light on Benefits . . .
Why does anybody buy anything?
Because they want something that
will do something for them. A
benefit. You may be in love with the
buttons and switches, the colors and
patterns of your product, but the
consumer is going to be more
interested in the benefits. This
doesn't mean you skip the
facts--just be sure to connect them
directly to what the consumer will
gain.
After pointing out benefits, you
should be prepared to back up your
"claims." If your product lends
itself to demonstration, do so. If a
sample of your product will help
sell it, offer the sample (or a free
trial period of a service). Do you
have a convincing roster of
satisfied customers? Have on hand
their testimonials--better still
(with prior permission), invite the
prospect to go with you to visit a
satisfied customer and see the
results for him/herself.
5. Call for Action and Final Words .
. .
All right. You've impressed the
prospect with your congeniality,
your qualifying savvy and general
professional approach. You've shown
and proven benefits. The prospect is
definitely interested but not
exactly perched on the edge of the
chair. You must now arouse a sense
of urgency, a need to heed your
"call for action." Your message must
be to act now, for any of these
reasons: the supply is limited or
seasonal or a special of some kind;
the best price is the one on offer
today and maybe never again; the
service desired must be scheduled at
this moment because of other
commitments that might get in the
way. No matter how pleasant it turns
out to be, a presentation is not a
social call. It means business, and
good business--if you do it right.
Copyright BBP 2003
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