The asking price of the offering must be fair and reasonable to both parties. The most common reason that a business does not sell is an unrealistic asking price. An inflated price will discourage many Buyers from even looking at your business. The smartest approach for most business owners is to have a Market Valuation Analysis done by an independent third-party valuator or a Certified Business Intermediary if they perform Broker Opinion of Value Reports. The value of tangible and intangible assets, risk of operating, cash flow generated, and other factors will determine a credible estimate of value. This will determine a Fair Market asking price which Sellers and Buyers will be comfortable with.
Be careful of expecting a premium because of potential. This is frequently the most difficult aspect of selling a business for a business owner to understand. A Buyer will generally view potential as something that cannot be bought or sold. The simple reason for this is almost any business has potential. Even an idea has potential. A Buyer will also take the view that if a business has as much potential you say it has, and it is so easy, then why hasn’t the Seller already taken advantage of it? Historical data is relied upon by Buyers and future projections are looked at with skepticism unless future events can be well documented. Certain current and future events could impact “potential” positively, such as a new product introduction, addition of a new customer, new business
Planning for the sale of your Company is one of the most overlooked areas. Careful planning and preparation before offering your Company for sale will return substantial rewards for the Seller. Consult with your Certified Business Intermediary. Too often businesses are rushed to market with declining sales, loss of key employees, lease expirations, health reasons, loss of customer base, new competition, etc. which severely impacts the value of the business and reduces the amount the Seller will receive for his Company.
Rely on your Certified Business Intermediary expertise to prepare a marketing package which will enhance your Company profile. Buyers and their advisors need complete records and documentation in order to analyze your business and the potential opportunity. A marketing presentation which also includes a professional business memorandum also increases your chances of receiving the true value for your Company.
Engaging a Certified Business Intermediary will greatly increase your level of confidentiality concerning the sale of your business. Employees, customers, vendors, competitors, and the general public should not be aware of your potential sale. A breach of confidentiality can change the course of the transaction and damage a business in the future. Qualified Buyers will have to execute a Confidentiality and Warranty Agreement prior to receiving confidential information on your Company and also qualify financially and possess appropriate industry or management experience.
Carry on “Business as Usual”. The Seller should concentrate on continuing to operate the day-to-day business as efficiently as possible. The Seller should maintain sales, costs and profits as most Buyers will review current results and interim financial statements. A lending institution will also look at the most recent financial records before a loan will be approved. Your Certified Business Intermediary will handle all aspects of the sales process and allow you to focus on operating your business.
A good business opportunity must have financing. Most entrepreneurs or investors will not pay all cash for anything, even though they may be able to. They will expect to leverage their money with financing. Typical cash down payment amounts range from 15 – 50%. Often a Certified Business Intermediary will work to get a business pre-approved for SBA financing. If the business does not qualify, the next option is for seller financing. Properly secured Seller Financing will often yield a higher price for the business, resulting in tax advantages and provide future payments at a reasonable interest rate with obvious risks attached. Sellers who do not offer financing may send a negative message to a potential Buyer indicating their lack of faith concerning the future and success of the business. The Buyers ultimate question is “If the business is so good, it must qualify for some form of financing!”
There are many types of deal structures which could possibly work for you. The best advice is to be flexible and patient. A good Certified Business Intermediary will work with Buyers on the structure of the proposal. The Broker will know when to review with the Buyers, present the offer or letter of intent and when to include a CPA or your financial/tax advisor during this stage of the process. A proposed deal structure may be deceiving, and the obvious higher price offer is not always the best deal for the Seller. Rely on your professional advisor’s input before making a decision.
Upon acceptance of an offer, the Buyer will typically have 14-21 days to perform the inspection of your books, tax returns, records, and other areas of your company to ensure that all information previously presented and relied upon for his offer has not been misstated. Once satisfied, the deal may move ahead to the closing.
The Buyer is greatly concerned with this final transaction of ownership stage. Employees must be told, customers informed, vendors notified, the general public made aware, and a host of other issues must be addressed. The Seller also wants a smooth transition and can assist greatly by offering his assistance and guidance if the Buyer so wishes. It is not unusual for a Consulting Agreement to be part of the deal so the Buyer will insure access and assistance from the Seller well after the deal closes.
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