Surveying the Business Scene: How Many Sell?

One of the most frequently-asked questions by those looking at the independent business scene is: "How many are for sale?" Right on the heels of that question comes another: "How many actually sell?"

To determine how many of these businesses are for sale at any one time, and what percentage of these get sold, it is necessary first to define terms by business category. The industry groups that account for the majority of small to mid-sized business sales are: manufacturing, wholesale trade, retail trade, business and personal services, and household/miscellaneous services. Using these categories as components, the total number of businesses that apply to our "survey" is approximately 6.3 million.

Of this total, businesses that are for sale at any one time account for roughly 20 percent. There is naturally going to be a higher percentage of businesses for sale that employ four or less workers, but some independent business experts feel that fewer of these businesses--at least percentage-wise--sell than do the larger ones. Of those businesses with four or less employees, one expert's estimate is that one out of six actually sells; with five to nine employees, about one out of five sells; and the trend continues.

Why is the actual-sale percentage lower for very small businesses? Many factors operate to affect this tendency. For example, the much smaller business may suffer more from unsubstantiated income or inaccurate financial information. Some owners may not be realistic in their pricing or simply aren't serious about selling (problems that can threaten the sale of a business at any level). Still others may simply pay the bills and close the doors.

However, no matter what the percentages show, a business owner considering putting a company on the market should remember this: most businesses are salable if the seller is realistic in assessing value and is aware that the marketplace is the final arbiter of the selling price.

Ten Mistakes That Sellers Make!

1. Not knowing what the business should sell for

One of the most costly errors a business owner can make is not knowing the approximate price of his or her business prior to entering the selling process. Although the marketplace ultimately determines the final price, an owner needs to know what the approximate price his or her business is prior to placing the business on the market. Before making the decision to sell, owners should work with someone qualified to place a price on their company.

An experienced business broker has both the technical ability and the market experience to produce the most realistic pricing opinion. The business broker will also be the only alternative for supporting his or her opinion by selling the business.

Fair Market Value
Asking Price is what the seller wants
Selling Price is what the seller gets
Fair Market Value is the highest price the buyer is willing to pay and the lowest price the seller is willing to accept.

2. Not preparing the business for sale

Determining the starting price point is only the first step. Prior to exposing the business to the marketplace, preparation is necessary. A business is certainly not a house, but the same attention to appearance prior to sale is necessary. Financial and legal affairs should be current. Anything a potential purchaser might want to see should be up-to-date, accurate and available for review.

Momentum is very important in business transactions and can make or break a deal. The constant need to develop information for a serious prospect will destroy momentum and with it, possibly, the deal. Demonstrating preparedness places the business in a favorable light and prospective buyers will feel comfortable that everything is in order. Being unprepared can delay a closing, create costly expenditures to play catch-up, and cause prospective purchasers to lose confidence in the deal itself. Too much time almost always works against the deal happening.

3. Not being able to see their business through the eyes of a buyer

This can be very difficult for any seller. It is only natural to see one's own business in a most favorable light and overlook the blemishes or problems inherent in any business. Sellers have to approach their business realistically, knowing that a potential buyer will be doing the same. By recognizing the deficiencies of their business, sellers are in a much better position to deal with the concerns of the buyer. In fact, the best way to handle any potential problem areas is to bring them up in the very beginning.

4. Not really knowing the buyer

The better you know the buyer, the smoother the transaction. By knowing the buyers, their motives, their interests and their backgrounds, the better equipped a seller is to make informed decisions about whether they are the right people to operate the business. When final negotiations begin, knowing the buyers can help resolve some of the issues that will arise. Are their interests the same as yours? If you, as the seller, are financing the deal, do you feel confident that they can make the payments? The more you know about why a buyer wants to buy your business, the better position you are in to know when to be firm in the negotiations and when to be flexible.

5. Trying to sell the company to a buyer who doesn't want to buy

There are usually many more potential buyers than there are businesses for sale. The question is -- how serious are they? A buyer may indicate a great deal of interest but when it gets down to the wire, he or she may back out of the deal. Some buyers want to buy only on their terms and conditions, some may have too many decision-makers to please, and others only want to buy the "perfect" business. Wasting time on those who aren't serious about purchasing a business takes away valuable time from those buyers who really want to buy.

6. Being your own worst enemy

Many business owners feel that no one knows their business like they do. They think they can do a deal by themselves. They don't need, or want, any help. They think they are lawyers, accountants, business brokers and outside advisors all rolled up into one person. Then when the going gets tough, they become impatient and inflexible. They then blame others, usually the buyer, when the deal blows up. As the old saying goes: "The attorney who represents himself has a fool for a client." The same could be said for the business owner who thinks he can sell his or her own business. Not using outside advisors, such as a professional business broker, is a serious mistake.

7. Not understanding the structure of the deal

Regardless of the size of the deal this could be the scenario: an offer is presented, the seller takes one look at the price, immediately says "no" and refuses to look any further. The price, within reason, is immaterial. The real crux of the deal is how it is structured. Consider the negotiating axiom "You can name the price if I can name the terms." The terms and conditions are important. A seller may be ecstatic about price only to find that the devil is in the details.

8. Not being able to walk away from the deal

Too many sellers get so involved in trying to put a deal together that they don't see the big picture. They don't realize that the deal isn't a good one. In other words, it's time to walk away from the deal and go on to the next one. Many sellers don't want to let the deal get away. Since they have invested a lot of time and effort, and probably expenses, it's often difficult to just end it. However, in some cases that's exactly what must be done. If the deal isn't right, and can't be fixed, there is no other choice. It's much better not to do the deal than to do a bad one!

9. Waiting too long to sell

Too many owners wait until the last minute to decide to sell their business. They wait until business is down, or they are completely burned-out," or their business partnership has soured completely. The time to sell is before the emergency happens. The time to sell is when business is good. The time to sell is prior to when exasperation hits. The old adage is that a business owner should think about and plan the eventual sale of the business the day after it is started or purchased.

10. Changing your mind

The sale is progressing nicely, the buyer is happy and the seller well, the seller is contemplating life without the business. He or she realizes that when the business is gone, they will have nothing to do. The business has been a major part of their life for many years. Just before the closing, the seller decides that he or she can't live without the business and the deal starts to unravel. Sometimes, seller's remorse arises because a business acquaintance says the price was too low, or there isn't enough cash involved or offers some other uninformed reason. If it was a good deal in the beginning, don't let well-meaning outsiders influence the sale. And, if there is even a speck of doubt about selling the business, don't begin the process. Wait until there is not one shred of doubt.

Ten Steps to the Successful Sale of a Business

Make sure you have a valid reason for selling your business. Don't decide to sell because you have had a bad week or because moving closer to the grandkids sounds like a good idea. Also, don't decide to "test the waters" just to see what sort of price your business will command. Before you decide to sell your company, focus on your true objectives. The first thing a prospective buyer will want to know is the reason you are selling. The more valid the reason you offer, the more serious the buyer will be.
Don't wait until you have to sell, for either economic or emotional reasons. You don't want anxiety to force you into accepting a deal that's not good for you--or for the buyer. During the two months preceding the new year, sellers always say that they don't want to sell until the after the first of the year. This delay can be an unfortunate one.
Once you have made the decision to sell--and before talking to your business broker-- you should gather the information needed to market and subsequently sell your business. Here's a list of the key items:

Three year's profit and loss statements
Federal income tax returns for the business
List of fixtures and equipment
The lease and any lease-related documents
Copy of the franchise agreement (if applicable)
List of loans against the business with amounts and payment schedule
Copies of any equipment leases
An approximate amount of the inventory on hand
Names of outside advisors

Remember that you are part of the marketing team. Your business broker can't do it all--and might even ask you to come to an office meeting to tell the rest of the staff about your business. Follow your broker's advice about dealing with prospective buyers--there's a right and a wrong time to meet them.
Confidentiality works both ways. The broker will constantly stress confidentiality to the customers to whom he or she shows your business. However, as the seller, you must maintain confidentiality about a pending sale in your day-to-day business activities.
You, as the seller, should put yourself in a prospective buyer's position. The next time you go to your place of business, pretend you are a buyer looking at it for the first time. How impressed are you?
Just because you are selling, now is not the time to let the business slip. It's important that prospective buyers see your business at its best: bustling, and showing no signs of neglect. Here are a few areas to focus on:

Keep normal operating hours. There is a tendency for sellers to "let down" when they put their business up for sale.
Repair signs, replace outside lights, and do a general spiffing-up for first impression purposes.
Tidy the outside premises (if appropriate).
Spruce up the interior as well.
Repair non-operating equipment or remove it.
Remove items that are not included in the sale.
Maintain inventory at constant levels.

Engage an outside professional who understands the sales process. David Gumpert, former Harvard Business Review associate editor said, "Inexperienced lawyers are often reluctant to advise their clients to take any risks, whereas lawyers who have been through such negotiations a few times know that's reasonable." If you are going to use a lawyer, use one who is seasoned in the business sale process.
Be flexible! You need to keep the ball rolling once an offer has been presented. Study it closely. Just because you didn't get your asking price, the offer may have other points that will offset it, such as higher payments or interest, a consulting agreement, more cash than you anticipated or a buyer that you are comfortable with. You have probably spent years building your business--you want it to continue to be successful. The right buyer may be better than a higher price, especially if there is seller financing involved, and there usually is. If you must counter-offer, do so only on those points that are really important to you. Be willing to "horsetrade" if you must to complete the deal. There is an old adage that the first offer you get is probably the best you will ever get--and it's true.
Remember that most successful transactions are successful because they create a win-win situation for everyone involved.

The Advantages of Seller Financing

Business owners who want to sell their business are often told by business brokers and intermediaries that they will have to consider financing the sale themselves. Many owners would like to receive all cash, but many also understand that there is very little outside financing available from banks, or other sources. The only source left is the seller of the business.

Buyers usually feel that businesses should be able to pay for themselves. They are wary of sellers who demand all cash. Is the seller really saying that the business can't support any debt or is he or she saying, "the business isn't any good and I want my cash out of it now, just in case?" They are also wary of the seller who wants the carry-back note fully collateralized by the buyer. First, the buyer has probably used most of his or her assets to assemble the down payment and additional funds necessary to go into business. Most buyers are reluctant to use what little assets they may have left to secure the seller's note. The buyer will ask, "what is the seller not telling me and/or why wouldn't the business provide sufficient collateral?"

Here are some reasons why a seller might want to consider seller financing the sale of his or her business:

There is a greater chance that the business will sell with seller financing. In fact, in many cases, the business won't sell for cash, unless the owner is willing to lower the price substantially.
The seller will usually receive a much higher price for the business by financing a portion of the sale price.
Most sellers are unaware of how much the interest on the sale increases their actual selling price. For example, a seller carry-back note at 8 percent carried over nine years will actually double the amount carried. $100,000 at 8 percent over a nine year period results in the seller receiving $200,000.
With interest rates currently the lowest in years, sellers usually get a higher rate from a buyer than they would get from any financial institution.
Sellers may also discover that, in many cases, the tax consequences of financing the sale themselves may be more advantageous than those for an all-cash sale.
Financing the sale tells the buyer that the seller has enough confidence that the business will, or can, pay for itself.

Certainly, the biggest concern the seller has is whether or not the new owner will be successful enough to pay off the loan the seller has agreed to provide as a condition of the sale. Here are some obvious, but important, factors that may indicate the stability of the buyer:

How long has the buyer lived in the same house or been a home owner?
What is the buyer's work history?
How do the buyer's personal references check out?
Does the buyer have a satisfactory banking relationship?

Advantages of Seller Financing for the Buyer

Lower interest
Longer term
No fees
Seller stays involved
Less paperwork
Easier to negotiate

The Confidentiality Myth*

When it comes time to sell the company, a seller's prime concern is one of confidentiality. Owners are afraid that if "the word gets out" they will lose employees, customers and suppliers. Not to downplay confidentiality, but these incidents seldom happen if the process is properly managed. There is always the chance that a "leak" will occur, but when handled correctly serious damage is unlikely. Nevertheless, a seller should still be very careful about maintaining confidentiality since avoiding problems is always better than dealing with them. Here are some suggestions:

Understand that there is a "Catch 22" involved. The seller wants the highest price and the best deal and this usually means contacting numerous potential buyers. Obviously, the more prospective buyers that are contacted the greater the opportunity for a breach of confidentiality to occur. Business intermediaries understand that buyers have to be contacted and but they also realize the importance of confidentiality and have the procedures in place to reduce the risk of a breach. Another alternative is to work with just a few buyers. This, however, does reduce the chances of obtaining the best price.
Another way to avoid this breach is to try to keep a short timetable between going to market and a closing. The shorter the timetable the less the chance for the word to get out. One way to keep a short timetable is to gather all of the information necessary for the buyer's due diligence ahead of time. Create a place where all of this material can be consolidated. This can be as simple as a set of secured file drawers. Such documentation as: customer and vendor contracts, leases and real estate records, financial statements and supporting schedules (assets, receivables, payables), conditions of employment agreements, organization charts and pay schedules, summary of benefit programs, patents, etc. should be gathered. It is not unusual for due diligence examinations to look back 3 to 5 years, so there could be a lot of records.
The above means that the seller has to get organized. Selling one's business is fraught with paperwork. Set up some three-ring binders so all of the relevant paperwork and resulting documentation has a place. These binders should be kept in a secure location.
The seller's employees should be conditioned to having strange people (potential buyers) walk through the facility. One way to avoid suspicion is to arrange to have unrelated people, for example - customers, suppliers, advisors - tour the company facilities prior to placing the business on the market.
If sellers have not prepared their employees for strangers walking through the facilities as suggested above, awkward situations can develop. A valued employee may question why tours are being conducted. The seller is then placed in the position of explaining what is happening or covering the question with a "smokescreen." A seller could reply by saying that the strangers are possible investors in the company. If asked directly if the business is for sale the seller could respond by saying that if General Electric wants to pay a bundle for it - anything is for sale. Once in the selling process, it is also important to minimize traffic by only allowing serious qualified prospects to tour the operation.
Keep in mind that confidentiality leaks can emanate from many sources. For example, an errant email ends up on someone else's email. A fax gets sent to the wrong fax machine or UPS or FedEx deliveries go to the wrong people. Establish methods ahead of time on how to communicate with potential buyers or an intermediary.
The key to handling confidentiality may be for the seller to retain a third party intermediary. They will insist that all potential buyers sign a confidentiality agreement. They will also be able to advise the seller on how to handle the "company tours" and can insure that only qualified buyers are shown the facilities.
The "myth" is that confidentiality issues can make or break a deal, or cause serious damage to the seller's business. The reality is that breaches seldom occur when an intermediary is involved, and if they do occur and are handled properly, there is little damage to the business or a potential transaction.

The Selling Memorandum

A sellers memorandum includes all those points one would normally expect to see in any business plan, to wit: an executive summary, a business description, financial requirements, target market niche, identification of top management, an operations review, analysis of strengths and weaknesses, and current financial statements and projections.

Guide to Mergers and Acquisitions published by PPC

A proposed sale of a middle-market company almost always begins with a selling memorandum. This document is called many things including offering memorandum, confidential descriptive memorandum or simply the book. Regardless of what you chose to call it, its purpose is to encourage prospective buyers to take a further look at the company.

For the seller, it has a secondary side benefit. It forces them to take a hard look at the company, its strengths and its weaknesses. Upon reviewing the information necessary to prepare a selling memorandum, the seller may, in fact, decide that it's not such a bad company after all and elect to keep it. On the other hand, the seller could decide that the current condition of the company needs to be improved before attempting to sell it. Looking at the company through the eyes of a buyer, as it were, could also prompt the seller to try to increase the value prior to selling. This may be done, for example, by building a stronger brand loyalty or entering into employee contracts with key managers or perhaps by diversifying the customer base.

Assuming, however, that the decision to sell has been made, the importance of the selling memorandum can not be emphasized enough. It is like a strong advertisement for the company and must tell a good story. It should highlight the positive parts of the company, add value for the buyer, and show the negatives as opportunities. The selling memorandum has to make a good first impression. A seller wants to attract qualified buyers and bring value to the company being sold. This means that the selling memorandum has to be prepared and written by a professional. It is too important a document to do otherwise. It is also the basis of a strong marketing program to attract the best buyer at the best price.

What makes up a strong selling memorandum? It includes quite a few different elements. But, first a few caveats:

Don't include confidential company information or reveal trade secrets. Although the document may be intended for qualified buyers only, once it is disseminated it really becomes a public document. Professional intermediaries and investment bankers do make prospective buyers sign a confidentiality agreement, which does help in this area. Still, with copy machines and email services readily available, it never hurts to maintain confidential information until much further in the negotiations.
Make sure that a prospective buyer knows exactly what you are selling. It is assumed unless otherwise mentioned that it is the entire company that is for sale. You don't want prospects to think that they can purchase just the most profitable portions of the company. Obviously, a seller wants to show-off the excellent parts of the company, but this should not be done at the expense of the not-so-good parts. These can be presented as excellent opportunities.
The selling memorandum should not be aimed at the right prospects. If the business requires technical language to best explain it, use it. A buyer, who doesn't understand it, probably isn't a buyer.
There should be an explanation of how the company works so a prospective acquirer can read through the lines about the selling company's corporate culture. This element can make or break a sale and it's best to discover it at the outset.
There is always a tendency to include too much information - don't. Don't over-sell. You don't need to include the names of customers and vendors and the names of all the employees.
Be sure to also include the blemishes. If there is a pending lawsuit, include. The bad news should be revealed early on - no one likes surprises, especially later in the negotiations.
And, finally, and probably, most important, the selling memorandum should be easy to read.

Now, what about the various elements of the selling memorandum. Here are the areas that should be covered in it.

Business Profile (or Executive Summary) - This may be the most important element of the selling memorandum. The entire offering should be covered in brief - no more than four-pages - at most. Many are done in one-page. Remember the sole purpose of the business profile is to generate excitement and interest. It is a selling piece! It should include:

Ownership
The Business
Financial highlights
Products and/or services
Markets
The opportunities
Reason for sale (Why is it for sale)

This business profile is usually sent to possible purchasers. If the prospect is interested further, they sign a confidentiality agreement before receiving the entire selling memorandum. The selling memorandum includes detailed information on the key elements of the company and usually covers the following:

Business overview - In other words, who and what is the company? This is the place where everything about the company is summarized: it's history, the employees (in general), the management team, the locations, any important intangible assets, and the outlook for the business.
Company strengths - What does the company do well? This should cover those strengths that bring value to this particular company.
Markets - Who are the customers/clients? What and how does the company sell its products or market its services.
The Risks - What are they? If there are risks in the business, they should be described and then an explanation of how the company solves them.
Financial data - Is the company making money? Cash flow statements are important. Current thinking is that the seller doesn't have to include all of the available financial data - which the prospective buyer will go through all the financial history as the deal moves forward.

The selling memorandum should include any relevant corporate and/or product brochures, as attachments. Prior to putting the business on the market, it is important that an outside valuation be performed. However, the price and terms are not usually a part of the selling memorandum - the marketplace will dictate the price. The purpose of the entire selling memorandum is to generate sufficient interest that a prospective acquirer will make an offer.

Building Value

Prior to putting a company on the market for sale, the question of value has to be addressed. Increasing the value should, in fact, be considered a year, preferably two, prior to sale. Value is based on profitability, cash flow, management and the overall quality of the operation itself. Here are some considerations in building value, whether the business is going tot be sold or not.

Are the company's pricing policies set too low creating low margins. Perhaps they were set some time ago in order to boost sales. Now might be a good time to review them to make sure they are in keeping with current market conditions.
Is the inventory level too high? How about work-in-progress or finished goods? Increasing the turns in inventory can increase cash flow.
Are you paying too much for raw material? Talk to your vendors and suppliers, you might be able to get some better prices or terms. Take a look at all of the expenses: utilities telephone, technology, office expense - it all adds up.
Are there services that could be outsourced for increased savings?
Increasing the quality of customer service may entice customers or clients to pay their bill promptly.
Are all the employees working together to improve the operation and profitability of the company?

These are just a few of the areas that can and should be reviewed. Although profits are important, there is an old expression that cash is king. The time to take a look at the overall company operations is now.

Measuring the Value of a Company

Consider the following important areas of a company. How does your company stack up in these critical areas? If you were to rank them on a 1 to 4 scale, for instance, what would your score be? The higher the score the more valuable the company! They are considered value drivers - in other words, they are important to a prospective buyer.

Profitability
Type of business
History of company and industry
Business growth
Customers/Clients
Market share
Return on investment
Quality of financial statements
Size
Management
Terms of sale

For example, in looking at a company's financial data - are the statements audited or merely compiled? Is the growth of the company slow or is it growing quickly? How about the customer base - is it based on several major ones, or is it spread out over many customers? The time to consider these critical value drivers is now!

The Time To Sell Might Be Right Now

The first question one might ask, given the relatively healthy financial climate, is WHY? Selling when times are good? The answer, for many sellers, can be a resounding YES! Here are some of the reasons why, followed by tips for getting the process started.

The Buyers Are Out There

Executives and middle managers out of work--and determined not to be "downsized" by big business again--are eyeing the advantages of being in business for themselves. For some time now, the percentage has steadily grown of those corporate executives who leave jobs in order to become independent business owners. It isn't just the money they are dreaming of--it's the desire for more control over their lives.

How to find these buyers? The business broker is the professional to whom sellers turn when looking for serious, "qualified" buyers. The business broker not only helps match the right buyer with the right business, but also educates the buyer in the buy-sell process, alleviating concerns and keeping the transaction in steady forward motion. With plenty of buyers to choose from in today's market, it's more important than ever to identify the time-wasters and those who think they want to buy but really aren't ready to take the big step.

It's Better To "Cash-Out" Than To "Burnout."

Burnout can come with a business that's successful as well as one that's failing to grow. The right time to sell is before the syndrome becomes a threat to the effective management of a business. What are the warning signs of burnout?

That isolated feeling.

The burnt-out owner has been "chief cook and bottle washer" for such an extended period of time that even routine acts of decision-making and action-taking seem like Sisyphean tasks. These owners have been shouldering the burdens alone too long.

Fuzzy perspective.

Burnt-out owners are so close to their work that they lose perspective. Prioritizing becomes a major daily challenge, and problem-solving sometimes goes no further than the application of business bandaids that cost money in the long run rather than increase profits.

No more fun.

Of course owning a business is hard work, but it should also include an element of enjoyment. The owner who drags himself or herself through every day, with a sense of dread--or boredom--should consider moving on to a fresh challenge elsewhere.

Just plain tired.

Simply put, many business owners burn out from the demands placed on them to keep their companies operating day after day, year after year. The schedule is not for everyone; in fact, statistics show that it's hardly for anyone, long-term.

The important point here is for business owners to recognize the signs and take action before burnout begins to hinder the growth--or sheer survival--of the business. Many of today's independent business owners feel they've worked hard, made their money and sense that now is a good time to "cash-out" and move on.

The Best Price Comes from Selling While "Up."

Other than burnout and its consequences, there are other factors that can lead to the "forced sale" of a business. Compelling personal problems (a divorce or death in the family, poor health), shortage of capital or outright failure of the business, the lack of heirs to take over--these are the traditional examples. Instead of waiting for unfavorable conditions, potential sellers should keep a wary eye out for that all-important right time for putting their business on the market. When might that time be?

The Small Business Administration (SBA), in researching selling trends, reports that three to five years is a long enough stretch for many of today's business owners. One in every three plans to sell; many of them right from the outset. The business they've bought is not a legacy for their children--it's a shorter-term investment of their time as well as their money. The ability to present a healthy operation, with an owner in the position to "role model" its success are major advantages in the completion of a successful business sale. One of the surest ways to maximize the value of a business is not waiting too long to sell.

What Do Buyers Really Want To Know

Before answering the question, it makes sense to first ask why people want to be in business for themselves. What are their motives? There have been many surveys addressing this question. The words may be different, but the idea behind them and the order in which they are listed are almost always the same.

Want to do their own thing; to control their own destiny, so to speak.
Do not want to work for anyone else.
Want to make better use of their skills and abilities.
Want to make money.

These surveys indicate that by far the biggest reason people want to be in business for themselves is to be their own boss. The first three reasons listed revolve around this theme. Some may be frustrated in their current job or position. Others may not like their current boss or employer, while still others feel that their abilities are not being used properly or sufficiently.

The important item to note is that money is reason number four. Although making money is certainly important and necessary, it is not the primary issue. Once a person decides to go into business for himself or herself, he or she has to explore the options. Starting a business is certainly one option, but is fraught with risk. Buying an existing business is the method most people prefer. Purchasing a known entity reduces the risks substantially.

There are some key questions buyers want, or should want, answers to, once the decision to purchase an existing business has been made. Below are the primary ones; although a prospective buyer may not want answers to all of them, the seller should be prepared to respond to each one.

How much is the down payment? - Most buyers are limited in the amount of cash they have for a down payment on a business. After all, if cash were not an issue, they probably wouldn't be looking to purchase a business in the first place.
Will the seller finance the sale of the business? - It can be difficult to finance the sale of a business; therefore, if the seller isn't willing, he or she must find a buyer who is prepared to pay all cash. This is very difficult to do.
Why is the seller selling? - This is a very important question. Buyers want assurance that the reason is legitimate and not because of the business itself.
Will the owner stay and train or work with a new owner? - Many people buy a franchise because of the assistance offered. A seller who is willing, at no cost, to stay and to help with the transition is a big plus.
How much income can a new owner expect? - This may not be the main criterion, but it is obviously an important issue. A new owner has to be able to pay the bills - both business-wise and personally. And just as important as the income is the seller's ability to substantiate it with financial statements or tax returns.
What makes the business different, unique or special? - Most buyers want to take pride in the business they purchase.
How can the business grow? - New owners are full of enthusiasm and want to increase the business. Some buyers are willing to buy a business that is currently only marginal if they feel there is a real opportunity for growth.
What doesn't the buyer know? - Buyers, and sellers too, don't like surprises. They want to know the good - and the bad - out front. Buyers understand that there is no such thing as a perfect business.

Years ago, it could be said that prospective buyers of businesses had only four questions:

Where is the business?
How much is it?
How much can I make?
Why is it for sale?

In addition to asking basic questions today's buyer wants to know much more before investing in his or her own business. Sellers have to able to answer not only the four basic questions, but also be able to address the wider range of questions outlined above.

Despite all of the questions and answers, what most buyers really want is an opportunity to achieve the Great American Dream - owning one's own business!

What Do Buyers Want To Know?

What is the required capital investment?
What is the annual net increase in sales?
What is in inventory?
What is the debt?
What is the prospect of the owner staying on?
What makes this company different/special/unique?
What further defines the product or service? Bid work? Repeat business?
What can be done to grow the business?
What can the buyer do to add value?
What is the profit picture in bad times as well as good?

What Every Seller Should Know

Selling your business is a major decision! You have devoted your time, money and energy to building, running and operating your business. It may well represent your life's work. You have decided that now is the right time to sell, and you want the very best professional guidance you can get. This is when working in tandem with a professional business broker can make the difference between just getting rid of the business and selling it for the very best price and terms. Following are some of the most common questions asked by sellers -- and if you are contemplating selling your business, these are questions you should be asking, too.

1. What Can -- and Can't -- A Business Broker Do for Me?

Business brokers are the professionals who will facilitate the successful sale of your business. It is important that you understand just what professional business brokers can do -- as well as what they can't. Business brokers can help you decide how to price your business and how to structure the sale so it makes sense for you and the buyer. They can find the right buyer for your business, work with the seller and the buyer in negotiating, and coordinate every step of the way until the transaction is successfully closed. They will also help the buyer with all details of the business buying process.

A business broker is not, however, a magician who can sell an overpriced business. Most businesses are salable 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 the success of the sale itself.

2. Why Is Seller Financing Important To the Sale Of My Business?

Surveys have shown that sellers who ask for cash receive, on average, only 75 percent of their asking price, while sellers who accept terms typically receive 86 percent of their asking price. 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 generate by financing the sale of their business. What's more, seller financing tells the buyer that the seller is confident about the ability of the business to -- literally -- pay for itself.

3. How Long Will It Take To Sell My Business?

It generally takes, on average, between three to four months to sell a business. (Keep in mind, however, that an average is just that.) The sooner the business broker has all the information needed to begin the marketing process, the shorter the time period for selling 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, not understanding that 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 for 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 -- as in the case of seller financing -- sends a message to a potential buyer about the seller's confidence in the health of the business.

4. What Happens When There Is A Buyer For My Business?

When a buyer is sufficiently interested in your business, business brokers will help in the preparation of an offer or proposal, which may have one or more contingencies. Usually, contingencies call for 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. The buyer's proposal will be presented to you for your consideration. 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.

Business brokers will submit all offers to you for your consideration. At first review, you may not be pleased with a particular offer: it may be lacking in some areas, but it might also have some pluses to seriously consider. Remember the old adage: "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 with thought and care.

When you and the buyer are in agreement, the business broker will work with both of you to satisfy and remove the contingencies in the offer. It is important that you cooperate fully in this process; otherwise, the buyer might think you have something to hide. 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 the possession of the business. Your business broker professional will work with you throughout the entire sales process.

5. Co-Branding: The New Age Business Combo

The store-within-a-store is not a novel concept. The tailor next to the dry cleaner, for example, is a combination that's been around since the beginning of business time.

Now combining business forces has a new look -- and a new name. It's called co-branding, and the idea is going like hotcakes. Like hotcakes with a side of motor oil. Among franchises, where the concept is most popular, co-branding means selling combined products and/or services at the same place of business. The combinations may sometimes seem unlikely, but any way you slice it, co-branding seems to work:

6. Co-Branding for One-Stop Convenience

This type of co-branding can produce some stomach-churning combos. Fast food and fuel, currently the most popular oddball mix, proves it can be convenience alone that makes the idea work.

For example, it's lunchtime and you also need gas. Why settle for Nabs and a Coke from the service station machine? Why go to McDonald's for your fast-food feast and then hit the road again for gas? Instead, while munching on your double-decker Italian at a Subway, your car is being gassed and car windows are being washed. One stop -- and two items are off your list.

When the combined franchises are both nationally-recognized big names, each one benefits from the business attracted by the other. And in cases where one member of the combo is better-known, the bigger name draws traffic to the other. There are also real financial advantages when two or more businesses co-brand. They will shoulder equally expenses such as rent, telephone lines, and most utilities.

7. Co-Branding for Synergy

Adding synergy to convenience makes a hard-to-beat selling technique. Business accounting services with a next-door-copy center, an office-supply store with a packing/shipping outfit, the bookshop that houses a coffee bar -- when different franchises are placed within one location, each can concentrate on its own special products or services. From the franchisor's point of view, co-branding increases efficiency and customer satisfaction.

These two-for-one operations bank on the attraction of allied products or services. The key here is to predict customer need -- and in the case of the bookshop coffee bar -- mood. Having fulfilled his/her original shopping purpose, what might the customer be drawn to next? This leads us to the next type of co-branding ...

8. Co-Branding for Impulse Purchase

The best example here is the national fast-food vendor, Arby's. This company also owns T.J. Cinnamons (breads and muffins). How better to introduce a new food concepts than to put them side-by-side with good old established roast beef? After lunch, go ahead and get your breakfast buns as long as they're right there.

From the point of view of the companies involved, this doubling-up (or even tripling up) means more than just increased sales. It makes good business sense all the way around. The space isn't all that's shared -- a wise financial move in itself -- but also payroll expenses and, in some cases, the workers themselves. After the breakfast rush, the crew can go next door and help set up for lunch. If one business melds better with the summer season and another with winter, employees can be concentrated to follow customer traffic.

So what's not to like about co-branding? So far, so good. For franchisors everywhere, it looks like a win-win combination.

What Makes the Sale of a Business Fall Through

There are myriad reasons why the sale of a business doesn't close successfully; these multiple causes can, however, be broken down into four categories: those caused by the seller, those caused by the buyer, those that just happen ("acts of fate"), and those caused by third parties. The following examines the part each of these components can play in contributing to the wrecked deal:

The Seller

In some instances, the seller doesn't have a valid reason for entering into the sale process. Without a strong reason for selling, he or she has neither the willingness to negotiate nor the flexibility to see the sale to a conclusion. Without such a commitment, the desire to sell is not powerful enough to overcome the many complexities necessary to finalize the sales process.
Some sellers are merely testing the waters. As detailed above, they are not at that "hungry" stage that provides the push toward a successful transaction. These sellers merely want to see if anyone wants to buy their business at the price they would like to receive.
Many sellers are unrealistic about the price they want for their business. They may be sincere about wanting to sell, but they are unable to be realistic about how the marketplace will value the business. The demand for their business may not be there.
Some sellers fail to be honest about their business or its situation. They may be hiding the fact that new competition is entering the market, that the business has serious problems or some other reason the business is not salable under existing circumstances. Even worse, some sellers do not disclose that there is more than one owner and that they are not all in agreement about selling the business.
A seller may decide to wait until a buyer is found and then check with their outside advisors about the tax and/or legal consequences. At this point, the terms of the deal have to be altered, and the buyer won't agree. Sellers should deal with these complications ahead of time. Nobody likes changes--especially buyers!
Sometimes sellers don't understand that almost all businesses are seller-financed. Buyers have to be able to make the payments while still making a living from the business. If the business cannot offer this necessity, no one will buy it.

The Buyer

The buyer may not have an urgent need or a strong desire to go into business. In many cases the buyer may begin with positive intentions, but then doesn't have the courage to make "the leap of faith" necessary to go through with the sale.
Some buyers, like sellers, have very unrealistic expectations regarding the price of businesses. They are also uneducated about the nature of small business in general.
Many buyers are not willing to put in the hours or do the type of work necessary to operate a business successfully.
Buyers can be influenced by others who are opposed to the purchase of a business. Many people don't or can't understand the need to be "your own boss."

Acts of Fate

These are the situations that "just happen," causing deals to fall through. Even considering the strong hand of fate, many of these situations could have been prevented.

A buyer's investigation reveals some unmentioned or unknown problem, such as an environmental situation. Or, perhaps there are financial deficiencies discovered by the buyer. Unfortunately, these should have been on the table from the beginning of the selling process.
The seller may not be able to substantiate, at least to the buyer's satisfaction, the earnings of the business.
Problems may arise, unknown to both the seller and the buyer, with federal, state, or local governmental agencies.

Third Parties

Landlords may become difficult about transferring the lease or granting a new one.
Buyers and/or sellers may receive overly-aggressive advice from outside advisors, usually attorneys. Attorneys, in their zeal to represent their clients, forget that the goal is to put the deal together. In some cases, they erect so many roadblocks that the deal can only fall apart.

Most of the problems outlined here could have been resolved before the selling process was too far advanced. There are also some problems that could not have been avoided--people do sometimes enter situations with the best of intentions only to find out that this is not the right answer for them after all. These are the exceptions, however. Most business sales can have happy endings if potential difficulties are handled at the appropriate time.

Business brokers are aware of the various ways a deal may fall through. They are experienced in resolving issues before the business goes onto the market or before a buyer is introduced to the business. To buy or sell a business successfully, sellers should resolve any potential deal-wreckers, following the advice of a professional business broker.

Although business brokers cannot provide legal advice, they are familiar with the intricacies of the business sale. They are also familiar with local attorneys who specialize in the details of these transactions. These attorneys will usually be more efficient, and therefore more cost-effective, than the attorney who handles a general practice.

When Selling Your Business, Play To Win

If you are an independent business owner, you are most likely also an independent business seller--if not now, you will be somewhere down the road. The Small Business Administration reports that three to five years is a long enough stretch for many business owners and that one in every three plans to sell, many of them right from the outset. With fewer cases of a business being passed on to future generations, selling has become a fact of independent business life. No matter at what stage your own business life may be, prepare now to stay ahead in the selling game.

Perhaps one of the most important rules of the selling game is learning how not to "sell." An apt anecdote from Cary Reich's The Life of Nelson Rockefeller shows a pro at work doing (or not doing) just that:

When the indomitable J.P. Morgan was seeking the Rockefeller's Mesabi iron ore properties to complete his assemblage of what was to become U.S. Steel, it was Junior [John D. Rockefeller, Jr.] who went head-to-head with the financier. "Well, what's your price?" Morgan demanded, to which Junior coolly replied, "I think there must be some mistake. I did not come here to sell. I understand you wished to buy." Morgan ended up with the properties, but at a steep cost.

As this anecdote shows, the best approach to succeeding at the selling game is to be less of a "seller" and more of a "player." Take a look at these tips for keeping the score in your favor:

Let Others Do the Heavy Pitching

Selling a business is an intense emotional drain; at best, a distraction. Let professional advisors do the yeoman's duty when selling a business. A business intermediary represents the seller and is experienced in completing the transaction in a timely manner and at a price and terms acceptable to the seller. Your business broker will also present and assess offers, and help in structuring the transaction itself. If you plan to use an attorney, engage one who is seasoned in the business selling process. A former Harvard Business Review associate editor once said, "Inexperienced lawyers are often reluctant to advise their clients to take any risks, whereas lawyers who have been through such negotiations a few times know what's reasonable."

Stay in the Game

With the right advisors on your side, you can do the all-important work of tending to the daily life of the business. There is a tendency for sellers to let things slip once the business is officially for sale. Keeping normal operating hours, maintaining inventory at constant levels, and attention to the appearance and general good repair of the premises are ways to make the right impression on prospective buyers. Most important of all, tending to the daily running of the business will help ward off deterioration of sales and earnings.

Keep Pricing and Evaluation in the Ballpark

Like all sellers, you will want the best possible price for your business. You have probably spent years building it and have dreamed about its worth, based on your "sweat equity." You'll need to keep in mind that the marketplace will determine the value of the business. Ignoring that standard by asking too high a price will drive prospective buyers away, or will at the least slow the process, and perhaps to a standstill.

Play Fair with Confidentiality

Your business broker will constantly stress confidentiality to the prospects to whom he or she shows your business. They will use nonspecific descriptions of the business, require signatures on strict confidentiality agreements, screen all prospects, and sometimes phase the release of information to match the growing evidence of buyer sincerity. As the seller you must also maintain confidentiality in your day-to-day business activities, never forgetting that a breach of confidentiality can wreck the deal.

Sell Before Striking Out

Don't wait until you are forced to sell for any reason, whether financial or personal. Instead of selling impulsively, you should plan ahead carefully by cleaning up the balance sheet, settling any litigation, providing a list of loans against the business with amounts and payment schedule, tackling any environmental problems, and by gathering in one place all pertinent paperwork, such as franchise agreement (if applicable), the lease and any lease-related documents, and an approximation of inventory on-hand. In addition, you could increase the value of your business by up to 20 percent by providing audited financial statements for one or two years in advance of selling.

Think Twice Before Retiring Your "Number"

The trend is for sellers to assume they will retire after selling the business. But consider this: agreeing to stay on in some capacity can actually help you get a better price for your business. Many buyers will pay more to have the seller stay aboard, thus helping to reduce their risk.

Keep the Ball Rolling

You need to keep the negotiation ball rolling once an offer has been presented. Even if you don't get your asking price, the offer may have other points that will offset that disappointment, such as higher payments or interest, a consulting agreement, more cash than you anticipated, or a buyer who seems "just right." The right buyer may be better than a higher price, especially if there is seller financing involved, and there usually is. In many cases, the structure of the deal is more important than the price. And when the ball is rolling, allow it to pick up speed. Deals that drag are too often deals that fail to close.

By following these tips, and by working closely with your business broker, you can have confidence in being a seller who, like John D. Rockefeller, Jr., doesn't "come here to sell." You will play the selling game--and be a winner.

When Selling Your Business: Confidentiality Is Key

You've make the big decision to sell. Your books are in order, you've spiffed up the premises. What are you waiting for?

Many sellers get to this threshold and then become concerned about confidentiality. They do not want the news of their decision to reach their customers, competitors, employees, or creditors. After all, they figure, customers may lose confidence in the business and go elsewhere, competitors might use this opportunity to spread rumors, employees might fear for their future security, and creditors might push for earlier payment. Not all of these qualms are reasonable; however, when selling a business, discretion is definitely the better part of valor. Few, if any, transactions have been wrecked due to excessive discretion. A breach of confidentiality, on the other hand, can severely alter the course of the transaction. What can you do to protect yourself against this possible deal-wrecker?

Your first step is to look for expert guidance. When a business broker is involved in the sale, he or she will channel the process to keep the transaction within safely silent bounds. You can expect your business intermediary to do the following:

1. Qualify the buyer.

Screening potential buyers is one of the most important benefits a business broker can provide for you. Keep in mind that roughly 90 percent of those who respond to business-for-sale ads are either not serious buyers or are not financially qualified. By screening prospects, the business broker will contribute to confidentiality by limiting the exposure of the business to the most promising buyers instead of to the merely curious time-wasters.

2. Use appropriate marketing strategies.

How can you advertise a business for sale without spreading the news too far? The business broker, as intermediary, is in an ideal position to do just that. Brokers place advertising and post listings that contain non-specific descriptions of the business. This "blind ad" approach can be phrased to attract interest in the business without revealing its name or exact location.

3. Prepare paperwork designed to promote confidentiality.

After screening prospective buyers and assessing the degree of interest and financial qualification, the business broker will also require prospects to sign a strictly-worded confidentiality agreement.

4. Manage appropriate release of information.

Until a purchase-and-sale agreement has been signed, the business broker can phase the release of information about the business to match the growing evidence of buyer sincerity and trustworthiness.

However, even with the most careful handling, rumors are unavoidable. The wise seller will expect questions from the curious and will be ready with answers. If you find yourself needing to muffle the business-for-sale buzz, aim for a mix of good sense and good humor. You might respond that many buyers have approached you over the years, making "news" before it happens. You could go on to say that you never refuse to listen to a great offer, adding that you are, in fact, all ears right at that moment!

No matter how close-mouthed sellers choose to be with the community at large, they might consider being open with their own employees. This is the group most likely to sense what's happening, and sharing the news with workers can sometimes be a positive move. Since it's often the unknown that causes the most anxiety, including employees in the decision to sell can actually calm over-active imaginations. Once enlightened, workers can be made to understand the need for discretion. Confidentiality will help protect their own future as well as that of the business.

Who Is The Buyer?

Buyers buy a business for many of the same reasons that sellers sell businesses. It is important that the buyer is as serious as the seller when it comes time to purchase a business. If the buyer is not serious the sale will never close. Here are just a few of the reasons that buyers buy businesses:

Laid-off, fired, being transferred (or about to be any of them)
Early retirement (forced or not)
Job dissatisfaction
Desire for more control over their lives
Desire to do his or her own thing

A Buyer Profile

Here is a look at the make-up of the average individual buyer looking to replace a lost job or wanting to get out of an uncomfortable job situation. The chances are he is a male (however, more and more women are going into business for themselves so this is rapidly changing). Almost 50 percent will have less than $100,000 in which to invest in the purchase of a business. In many cases the funds, or part of them, will come from personal savings followed by financial assistance from family members. The buyer will never have owned a business before, and most likely will buy a business he or she had never considered until being introduced to it.

Their primary reason for going into business is to get out of their present situation, be it unemployment, job disagreement (or discouragement). The prospective buyer wants to do their own thing, be in charge of their own destiny, and they don't want to work for anyone. Money is important but it's not at the top of the list, in fact, it probably is in fourth or fifth place in the overall list. In order to pursue the dream of owning one's own business, the buyer must be able to make that "leap of faith" necessary to take the risk of purchasing and operating their own business.

Buyers who want to go into business strictly for the money usually are not realistic buyers for small businesses. Keep in mind the following traits of a willing buyer:

The desire to buy a business
The need and urgency to buy a business
The financial resources
The ability to make his or her own decisions
Reasonable expectations of what business ownership can do for him or her

What Do Buyers Want to Know?

This may be a bit premature since you may not have decided to sell, but it may help in your decision making process to understand not only who the buyer is, but also what he or she will want to know in order to buy your business. Here are some questions that you might be asked - and, should be prepared to answer:

How much money is required to buy the business?
What is the annual increase in sales?
How much is the inventory?
What is the debt?
Will the seller train and stay on for awhile?
What makes the business different/special/unique?
What further defines the product or service? Bid work? Repeat business?
What can be done to grow the business?
What can the buyer do to add value?
What is the profit picture in bad times as well as good?

Why Sales of Businesses Fall Apart

There are three main players involved in the sale of a business, plus one other factor - that could be termed "the hand of fate." The players directly involved are: the sellers, the buyers and the third parties. Each one of these has an important role in the successful closing of the sale of a privately held business. Conversely, each one can directly contribute to the deal not closing at all. Although in many cases there can be a combination of two or more, usually one side is the main contributor, or, at least, starts the ball rolling uphill. Here are the primary reasons why deals end up not closing and then how the "fickle hand of fate" can also have a negative impact on the deal.

Sellers

Many times, sellers are not really committed to selling the business. Although it may have sounded like a good idea at the time, or they may suddenly realize that they won't have a thing to do if it sells, or they discover that the marketplace will not pay them what they think their business is worth. A seller who is committed to selling will be willing to overcome the complexities necessary for closing the sale.
In some cases, a seller may not reveal a problem, or may not think it is not important enough to reveal. Buyers, like most people, do not like surprises. Sellers must understand that only by openly discussing all issues about the business can a sale close successfully.
Sellers should consult their outside advisors prior to putting their business on the market.
Sellers must understand that their business is only worth what someone is willing to pay for it. Also, a seller who is willing to offer reasonable terms to a buyer almost always will receive a higher price than the seller.

Buyers

Like their counterparts - the sellers - buyers must also be motivated to act. Without the need or desire to own their own business, the sale will not close. This need and desire must be coupled with the courage to "make the leap of faith" necessary to be a business owner. There are no guarantees.
Buyers must have realistic expectations of just what their money will buy - so to speak. A buyer who has $50,000 to invest in a business can't expect to buy a business to that has $250,000 in profits. He or she may be able to increase the business to this level, but one can't expect to buy it with a minimum down payment. A rough rule of thumb is that a buyer can hope to buy a business with a bottom line equivalent to the amount of down payment available.
Buyers must be willing to work hard and understand they are usually the proverbial "chief cook and bottle washers." Long hours and long days are generally necessary to succeed in operating one's own business. However, there is nothing like being one's own boss.
Buyers should listen to their advisors, but understand that only they can make the decisions.

Third Parties

Advisors may be overly aggressive and try to make decisions for both buyers and sellers. Assuming that the buyer and seller are in agreement, the role of the advisor or professional is to make the deal happen unless it is illegal to do so. Outside advisors may, with all good intentions, throw up so many roadblocks that the deal goes sour.
Landlords can also be stumbling blocks. They are usually the only party to a business sale that gains nothing from it. The lessor is asked to draw a new lease or assign an existing one. It is best if the landlord or his or her representatives are consulted prior to the business going on the market. This way there are no surprises once a qualified buyer is found.

Acts of Fate

Situations can develop that are the fault of no one, but the "fickle hand of fate" can occur causing a sale to fall apart. Here are a just a few instances:

The proverbial "truck" hits the buyer. This has happened, as has the fire that destroys the business a day before the sale is to close. Such acts are rare, but these acts of fate do happen.
An unsuspected environmental issue may arise that - best case - merely postpones the closing, but - worst case - wreaks the deal.
The buyer or seller may have misrepresented something along the way that comes back to force the sale not to close. This may have been unintentional, but the damage is done. It is important that everyone is open about every phase of the transaction.

Business brokers have seen almost everything that can cause the sale of a business to fall apart. They are aware of the problems that can cause a sale not to close and can usually resolve them before they can impact the sale. Business brokers have been through the selling process and have worked with outside advisors and professionals. They are familiar with all of the intricacies of the business transaction. Most business sales can have happy endings if any potential problems or difficulties are handled and resolved at the appropriate time.

Why Sell Your Company

Selling one's business can be a traumatic and emotional event. In fact, "seller's remorse" is one of the major reasons that deals don't close. The business may have been in the family for generations. The owner may have built it from scratch or bought it and made it very successful. However, there are times when selling is the best course to take. Here are a few of them.

Burnout - This is a major reason, according to industry experts, why owners consider selling their business. The long hours and 7-day workweeks can take their toll. In other cases, the business may just become boring - the challenge gone. Losing interest in one's business usually indicates that it is time to sell.
No one to take over - Sons and daughters can be disenchanted with the family business by the time it's their turn to take over. Family members often wish to move on to their own lives and careers.
Personal problems - Events such as illness, divorce, and partnership issues do occur and many times force the sale of a company. Unfortunately, one cannot predict such events, and too many times, a forced sale does not bring maximum value. Proper planning and documentation can preclude an emergency sale.
Cashing-out - Many company owners have much of their personal net worth invested in their business. This can present a lack of liquidity. Other than borrowing against the assets of the business, an owner's only option is to sell it. They have spent years building, and now it's time to cash-in.
Outside pressure - Successful businesses create competition. It may be building to the point where it is easier to join it, than to fight it. A business may be standing still, while larger companies are moving in.
An offer from "out of the blue" - The business may not even be on the market, but someone or some other company may see an opportunity. An owner answers the telephone and the voice on the other end says, "We would like to buy your company."

There are obviously many other reasons why businesses are sold. The paramount issue is that they should not be placed on the market if the owner or principals are not convinced it's time. And consider an old saw that says, "The time to prepare to sell is the day you start or take over the business."

Why Seller Financing?

Many business owners would like to receive all-cash for their business when selling. And yet they are often told that this is really not possible. Why? Most people are accustomed to financing just about everything - home, car, vacation home, even college for their children. The first question business brokers are often asked is, How much money will I have to invest to buy that business?

Seller financing is usually necessary because of the lack of outside financing available. Certainly, some is available, but less than 90 percent of small business sales receive outside financing when selling. If you are selling you may be one of the few lucky ones, but the business better be absolutely perfect.

If a seller is not willing to finance the sale, many buyers suspect a problem. After all, a business should be able to pay for itself and provide a reasonable income for a buyer. A buyer then wants to know what is wrong with the business that the seller wants all cash?

Aside from this, even if a buyer has all of the necessary funds, he or she may want to spend their money on improving the business, adding equipment, building inventory, or just keep it for working capital.

Another similar issue that is raised by sellers is that, if they are willing to finance the sale, they want some outside collateral to secure the loan on their business. They want to make sure that they get all of their money - with no risk. Buyers are very sensitive about this issue. Again, they raise the point about the business being able to pay for itself. They may feel that the seller wants additional security because of concerns about the business's ability to generate a reasonable profit. This is not a reassuring signal to the buyer. Most buyers are already using most of their capital for the down payment, and they generally are very reluctant about using their home or retirement funds for additional collateral.

The services of a business broker professional can usually provide guidance in the overall financing process. And financing is often the key to the successful selling of a business

Why Your Business Won't Sell!

What are the odds of your business actually selling once you have made the decision to sell? Well, if the annual sales of your business are $750,000 or less, research indicates that the odds of your business selling are only 18 percent. If your annual sales are $750,000 to $2 million, your odds increase to 25 percent. If your annual sales volume is above $2 million, the odds increase to 30 + percent. Keep in mind that approximately 75 percent of all businesses have annual sales of less than $750,000.

What does this all mean? To put it bluntly: if you are thinking of selling your business, you have about a one in five chance of it actually selling. This obviously begs the question: why are the odds so poor? One would think that if you put your business on the market, it should sell in a reasonable length of time. Here are some reasons why some businesses didn't sell-as explained by various business brokers and intermediaries. They are excerpted from an article in INC magazine, April 2002.

The business is no longer listed for sale. The cash flow was strong, but a lot of buyers thought that the deal was overpriced.
Buyers were intrigued, but the economics of the deal wouldn't make sense, and the seller wouldn't negotiate.
There was serious interest, but the owner got distracted by an arrangement with a friend to solicit offers. None came through.
We almost had a deal, but financing was impossible to find.
We had three offers, including an accepted bid for $4 million, but the buyer couldn't get financing.
The deal dragged on for months but fell apart for lack of financing. . .

They say that timing is everything. Many business owners wait until the economy is down. Their own business is also paying the price for the slowdown, so they elect to sell. Now they discover that the price they thought they could get for their business is not realistic in today's market. Sellers should keep in mind that the best time to sell is when their business is doing well.

One factor that emerges from the comments by intermediaries above is the lack of financing. This would seem to indicate that the sellers wanted all cash, or, at least, a good portion of the selling price in cash. Three of the comments stated that the reason the deal didn't go through was that "financing was impossible to find," "the buyer couldn't get financing," and ".fell apart for lack of financing." The reasons that obtaining financing is so difficult are (1) the business doesn't qualify for financing, (2) the buyer doesn't qualify for financing, and, most importantly, most small businesses are not financeable. Banks are generally not interested; the Small Business Administration (SBA), although certainly an option, only comes through in less than 10 percent of deals. If lenders are not interested in financing the sale of the business, there are only two choices: the buyer pays all cash or the seller finances the sale.

Tips for a fast sale

Have up-to-date financial information available
Prepare a current list of fixtures & equipment
Maintain normal business hours
Spiff up the business
Set a realistic price
Be willing to negotiate
Gather all of the information a buyer might like to review

Here are two major ways to increase the odds that your business will be the one in five that sells:

Make sure that you are serious before you put your business up for sale. You should be willing to accept, within reason, what the marketplace is willing to pay. It's not what you want for your business, or what your accountant says it's worth - it's what a buyer is willing to pay. Find out if the price you are asking is in the "ballpark" before you go to market. Your local business brokerage professional is a good place to start. He or she can tell you what similar businesses have sold for and what you might expect to receive if you sell now.
Be willing to finance the sale of your business. Counting on the businesses selling for all cash or assuming that the business can be financed will most likely make your business one of the four that don't sell. By showing your willingness to assist in the financing, you reassure the buyer that you have confidence in the businesses' ability to finance itself. Also, keep in mind that by financing the business you will be entitled to interest on the balance, thereby increasing the price you will receive.

Following these guidelines and tips might not sell your business, but it will certainly increase the odds. Almost any business will sell under the right circumstances. If you are serious about selling, the first step would be to call a professional business broker. He or she can answer all of your questions about the selling process and what it takes to sell your business in today's economic climate.

The Perfect Business

The perfect business, the one that would be sure to sell, has the following attributes:

a reasonable price
a reasonable down payment (hopefully 40 percent of the full price or less)
seller financing
reasonable sales (hopefully increasing each year)
seller earnings of $60,000 or more
a compelling reason for sale
a desired or popular industry type
attractive and strategic location (if important for business type)

There is an old saying that goes something like this: "The worst day of working for yourself is better than the best day of working for someone else."

You Can Help!

We look forward to working with you in finding a suitable buyer for your business. You, as the seller, are an integral part of the total marketing program. We would like to offer a few friendly recommendations that will help in our marketing efforts. We have checked those items that we think will be especially applicable to your type of business.

It might also be helpful if you took a good look at your business from the perspective of a buyer. Try to put yourself in the place of a prospective purchaser of the business. What would you do to make it more attractive or more saleable? Obviously, the financial records of your business are critical to the sale of your business, but how it looks is also important. First impressions really count! If a potential buyer doesn't like the appearance of your business, the rest of it may never get a chance. If you have any questions, please don't hesitate to call us. It's only by working together that we'll get the best results.

You might want to check the following to see if any of them are applicable:

Keep normal operating hours. There may be a tendency to "let down" when you put your business up for sale. However, it's important that prospective buyers see your business at its best.
Repair signs, replace outside lights, etc. You don't want your business to look as if it has been neglected.
Maintain inventory at a constant level. If you let your inventory slide, your business will look neglected. If anything, increase it so your business will look busy.
Remove items that are not included in the sale or unnecessary items, especially if inoperative.
Repair non-operating equipment or remove it if you are not using it.
Tidy-up outside premises.
Spruce-up the inside of the business.

BUY OR SELL YOUR SOUTH FLORIDA BUSINESS