Some Common Questions & Answers

How Long Does it Take to Sell My Business?

 

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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 selling 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.

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 Business Supervisors Do - And, What Can't They Do?

Business supervisors are the professionals who will facilitate the successful sale of your business. It is important that you understand just what a professional business supervisor 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.

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.

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The Dos and Don'ts of Seller Financing

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In today's tight business for sale marketplace, an owner's willingness to finance the sale gives him an edge over the competition. To stay on track, sellers need to follow some obvious - and some not so obvious - dos and don'ts.

There's nothing more frustrating than a listed business that attracts a lot of attention, but no buyers who are willing to seal the deal. Most of the time, the business isn't the problem. In fact, a business that generates significant attention in the marketplace is usually a good candidate for a sale. Instead, the issue is most often the buyers' inability to secure financing at the owner's selling price. That leaves owners with two options: Either lower the selling price or work with the buyer to overcome sale barriers.

Assess the Risk

A cash sale is an essentially risk free transaction for the seller. Once the deal is done, the seller can comfortably walk away from the business with money in the bank. In an owner financed transaction, the seller continues to be tied to the business long after the sale is complete. If the business succeeds, the new owner pays back the principal with interest and everyone is happy. But if the new owner is unable to make the business profitable, the seller could suffer the loss of interest income and incur additional costs to collect the debt.

The bottom line is that an owner financed sale needs to be evaluated as a business investment. Like any other investment, there is a certain amount of risk inherent in the decision. If you are comfortable enough to invest in the new owner, then it could be beneficial to finance the sale yourself. But if you aren't confident the buyer can make the business a success, offering financing as an enticement to close the deal is the worst decision you can make.

Leverage the Benefits

If the buyer is, in fact, a good investment risk, the seller stands to reap substantial benefits from self financing. Too many sellers view financing as a desperate measure to unload the business when they should be viewing it as a resource for enhancing the benefits of the sale.

Right out of the gate, your willingness to hold paper increases the final selling price of the business. Partially financed sales typically result in a price that is more than 15 percent higher than their cash sale counterparts. That means you can leverage your willingness to finance as a bargaining tool during negotiations.

Advertise Your Willingness to Finance

Sometimes sellers are hesitant to advertise a financing option because they aren't totally sold on the idea and are only willing to offer financing if they get backed into a corner during the negotiation process.

If you aren't comfortable with the idea of financing, then you shouldn't consider it as an option at all, not even during negotiation. But if you are comfortable with financing part of the sale, you should include that information as a selling point in your marketing efforts.

One of the most productive avenues for advertising a seller financed company is online. Listings containing information about owner financing yield a noticeably higher volume of hits than those that don't. 

 

DON'T Do It Yourself

A loan between a seller and a buyer is subject to limitless structures and variations, many of which require the input of professionals in order to secure airtight collateral, coherent loan terms and adequate insurance coverage. Before you agree to financing, obtain legal and financial advice from a professional you trust.

DON'T Be Pressured

There's a good chance that potential buyers will try to push for a seller financed deal. This is particularly true for buyers that are unable to secure financing from traditional lending sources due to an inadequate down payment or other borrowing obstacles.

No matter how anxious you are to sell the business, caving into buyer pressure for the sole purpose of closing the deal is a big mistake. When a buyer pushes too hard for financing, take a step back and conduct a simple reality check. If you aren't completely comfortable with financing the buyer's purchase, walk away and wait for a better buyer candidate to emerge.

 

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Seller Financing Basics

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Most small business sales are financed, at least in part, by the sellers themselves. Offering seller financing puts the seller in a stronger position to get a better price and a faster sale.

Buyers nearly always need seller financing. Their advisors strongly recommend it. Seller financing acts like a bond for performance to assure that the seller will live up to the promises made to the buyer during the sales process. Seller financing is seen by most buyers as an indication that the seller has faith in the future of the business.

Buyers can expect, however, that sellers who offer seller financing must also act a lot like a bank! A buyer can expect to be asked to secure the loan and sign a personal guaranty.

What is Seller Financing?

Sellers of small businesses usually allow the buyer to pay some of the purchase price of the business in the form of a promissory note. This is what is known as seller financing.

Seller financing is particularly common when the business is large enough to make a cash sale difficult for the buyer, but too small for the mid market venture capitalists. Seller financing is also common when the business, for any number of reasons, does not appeal to traditional lenders.

Why Would A Seller Offer Financing?

Sellers are nearly always reluctant to offer seller financing. Like all of us, they fear the unknown. Despite the advantages of playing bank, it is an uncomfortable role for them. They usually come around to seller financing only after some effort has been made to persuade them.

A seller's first encounter on this issue might be with the business supervisor. In many cases, but not all, the business supervisor will bring up the issue. Most business supervisors agree that sellers need to offer seller financing, but not all are willing to discuss the issue at the beginning of the listing. When the buyer is unknown, the seller's fear of seller financing is greatest. Some supervisors prefer to wait until the buyer prospect is known before suggesting the amount and terms of seller financing.

Offering seller financing up front, however, can attract buyers and speed up the business sale. This is the major issue that usually persuades a seller to offer some type of financing.

Seller financing is seen by buyer prospects as comforting proof that the seller is not afraid of the future of the business. Buyers are more likely to believe a seller's optimistic view of the business' future when seller financing is offered. Some buyers can't or won't look at businesses for sale unless seller financing is a possibility.

The more buyer prospects that look at a business, the better the chance a seller has to get an acceptable offer. A seller can also get a better price for a business that has financing in place. As in nearly all buying situations, buyers are often focused on achieving a purchase on terms that allow them to buy with as little 'cash in' as possible, even if the long run costs are higher.

Seller financing can also lead to a speedier sale. If the seller plays bank, then the deal gets done more quickly. Applying for a bank loan takes a long time for some buyers. A seller is more much likely to grant a loan request, approve a transaction, and close it as fast as the attorney can get the agreements prepared. There is also the possibility that the bankers will give the buyer negative feedback about the business, so that the buyer backs out.

A seller may also see tax advantages and profitability in seller financing, but these alone are not usually compelling reasons to offer seller financing. Capital gains from a small business sale can be reported in installments if seller financing is in place. This stretches out the capital gains tax into future years.

Why Should A Buyer Ask For Seller Financing?

Buying a business without seller financing is like buying a home without a home owner's warranty. The seller note is a bond for performance. This is the major reason a buyer ought to ask for seller financing.

The buyer is required to form a corporation and give the seller the rights to 'vote the stock' in case of seller note default. This allows the seller a speedier solution than foreclosure. If the terms of the seller note are not met, the seller can vote to require that payments be made and can even vote to replace management of the business. This threat is usually enough to guarantee seller note payments are not missed.

How Can Both Buyer and Seller Benefit?

Buyers are just looking for a fair chance to buy a business and a reasonable return on investment. They are usually fair about how they define what they need to receive as a return on investment for the business risks they are assuming.

Sellers are mostly just ordinary people who once bought or started a business and now want to sell it. They want to get the most they can, but they have learned to be practical. They are usually persuaded by fairness and reasonableness. If not that, then they are at least eventually persuaded by the reality of what's possible.

If you are a buyer, seller financing can offer you better terms and a friendlier lender. You will be able to buy the business quicker because you won't have to wait a month for the bank's loan committee to meet. There are no loan processing or guarantee fees and, usually, no invasive lender controls or audits.

If you are a seller, I would advise an early commitment to seller financing. It will save you a lot of time. You'll get a better price because you'll see more buyer prospects. Seller financing, properly understood and employed, can really benefit both buyer and seller.

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Deal Terms You Can Expect

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When it comes to selling a business, there are a number of scenarios that you may encounter that involve far more than just the purchase price. You may also come across terms that are new to you. The good news is that despite the number of possibilities, they are all fairly "standard". There are really three main areas that you want to be aware of prior to selling the business:

Purchase Price/Valuation

As you can probably imagine, the value that you have for the business will likely differ from the buyer's assessment. The first thing to understand as a seller is that whatever you think the business is "worth" is not necessarily the "value". You have an emotional investment in the entity. Your years of hard work are tied to it and so naturally, to you, that is "worth" quite a bit.

However, a buyer will initially look at the business strictly from a logical perspective and will determine a value based upon the provable historical financial data, industry comparables, asset values, and return on investment, etc. As you can see the spheres of logic and emotion are operating independently.

The objective of course is to get the two perspectives to intermingle; meaning that you the seller need to understand what is logically a proper value for the business, and the buyer may need to lessen their rigidity and look to some of the benefits of owning the business and thereby be willing to pay a reasonable premium for a solid business they can grow.

All This is Easier Said Than Done!

If you do not have experience in business valuations, then you clearly want to engage competent professionals
to do so. You can have a formal valuation done, but those usually only apply in larger sales plus, they do not
always reflect the real world. Nevertheless, they can be an excellent learning tool and basis from which to begin.
Your accountant can assist you, however they generally place too much emphasis on the Balance Sheet for
valuations whereas a small business buyer is looking for income and therefore will pay more attention to the Profit & Loss Statements (P & Ls). A business supervisor will generally utilize a more simplistic approach and may over emphasize what it will take to sell the business quickly. However, any good supervisor will likely provide you with a much more realistic valuation based upon the general market versus other sources. It does behoove you nevertheless, to consider having a valuation done from all perspectives since valuations are an art, not a science and with a range of opinions you will be in a much better position to deal with the buyer and your expectations will likely be at the right level.

Above all, the market will dictate the valuation of your business so if you overprice it, after going through an extended period of no offers or "low balls", you will begin to see what the market will bear. If you're way off, you may need to adjust your thinking.

Financial Terms

There are three basic possibilities for the actual deal terms: all cash, seller financing, third party financing

All Cash

Although the concept that a potential buyer will write you a big, fat check for your selling price is enticing; it's highly unlikely. All cash deals only happen in a small percentage of small business sales and the seller will usually have to take a "haircut" of 15 to 25 percent off their selling price. While these deals do happen, it is not common. 

Seller Financing

You undoubtedly have to make a decision about financing part of the purchase. This is not usually too attractive for a business owner. The main fear is you will not get your money, and that can happen. However; seller financing does represent the majority of deal terms and by offering it you can absolutely obtain a better purchase price from the buyer.

The amount of seller financing averages around thirty to fifty percent of the purchase price with the percentage declining as deals get larger. In other words, the smaller the sale price the greater the amount of seller participation usually. This makes perfect sense since the margin of error and risk in
the buyer's eyes increases for a smaller business.

 
Third Party Financing

I don't know about you but I get an onslaught of solicitations from my own bank about all of their "fantastic" programs that can help small businesses. The big banks have done a wonderful job of marketing and conveying the impression that their vaults are wide open for entrepreneurs. As you know, that is definitely not the case. The problem is that most business buyers don't know it; but they'll learn quickly.

 
Performance Clauses and Earnouts

In some transactions, part of the purchase price may be tied to the business' future performance. This generally happens when:

• The business has experienced a recent surge in revenue/profitability and the buyer wants to be certain it is sustainable
• The business has recently landed a significant future contract and the seller wants to receive the benefits of it in the purchase price.
• There is a large percentage of the company's revenue tied to a very limited number of clients. Should any of them no longer remain a client after the sale, it can significantly impact the business
• The business has been in decline but measures have been taken to get the business back on track.
• If you tie the purchase price to future performance is a way to deal with all of these situations however; the conditions can be cumbersome unless there is very detailed and specific language to measure the results. 

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Selling Your Business Online

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Many business owners looking to sell their business don't realize they can use the internet to make the selling process go more smoothly. Online business for sale marketplaces allow sellers to reach a large number of potential buyers and provide resources for owners considering putting their business up for sale.

Q: What should a seller do to prepare for listing a business for sale online?

A: Allowing yourself enough time is key. Too often, people try to rush their business to market and run into complications during the selling process as a result. Figure out your company's financial situation so that you can present this information to prospective buyers.

Once you put the business up for sale, have all of the information relating to potential growth and revenue, past performance and business costs on hand. Putting the time and effort into preparing these figures in advance will tell potential buyers that you know what you're doing and give them more confidence in you.

Q: What tips do you have for creating a business for sale listing?

A: Providing the right information is imperative. There's a fine line between providing so few details that prospects don't take notice and providing so many that your business' confidentiality is compromised.

The key is providing the most information possible without giving away the identity of the business. It's important to give viewers an idea of the general location of the business, but don't post the street address, phone number or address in the listing. Instead, create a separate email address and phone number for inquiries from potential buyers.

It sometimes helps to tell potential buyers why you're selling the business. If you're honest, people tend to be less skeptical. Once you list your business, you might find that certain questions come up repeatedly in inquiries.

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A Step-by-Step Guide to Selling Online

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The decision to sell can be brought on by many factors, including a change in location, finances, or lifestyle. Whatever the reason, sellers should be aware of basic steps that can make the transaction more efficient and effective.

we are noticing a growing number of would be business buyers browsing our site. Unfortunately, we also see many business owners attempting to sell online using largely ineffective methods. These situations are usually the result of a lack of research and preparation before listing a business, and can greatly increase the amount of time a business is on the market, can make the selling process more frustrating than it should be, and can result in a much lower selling price.

The good news is that if business owners looking to sell can devote time to researching proper selling methods and follow simple steps, the process can be a breeze.

Step 1: Preparing to Sell Your Business

As with any type of business, selling is not something to rush. Ideally, many months (if not years) should come between making the decision to sell and putting your business on the market. This allows you to properly assess and document the financial situation of your business and to create reports detailing potential growth and revenue. It will also give you enough time to modernize any outdated systems that might deter buyers once the business hits the market.

Remember - just because you have started the selling process and know you will soon no longer be responsible for the business does not mean you don't have to keep it up to date while it is on the market. It is important to put yourself in potential buyers' shoes and consider the type of business you would like to purchase if you were currently in the market.

Step 2: Providing the Right Information

The key to selling a business while maintaining confidentiality is providing the most information possible without giving away the identity of the business. It is important to give viewers an idea of the general location of the business, but do not post the street address, phone number, or email address in the listing. Instead, create a separate email address and phone number for inquiries from potential buyers.

Do tell potential buyers why you are selling the business. If you are honest, people will tend to be less skeptical, and you will probably sell the business faster. If your listing makes it seem as though you are hiding something - even if you aren't - potential buyers will be quick to pick up on it and shy away.

Once you list your business for sale, you might find that certain questions come up repeatedly in inquiries. This can serve as a good guiding point for what you should change or add to your listing.

Step 3: Screening Buyers

Another potential issue to prepare for is receiving inquiries from people who are not serious about buying. Sellers often encounter people who have the dream, but no realistic intention of going through with a deal. After all, there are a lot more people who are interested in becoming a business owner than people who are actually capable of becoming one.

It is difficult for online marketplaces to screen potential buyers, so sellers have to determine whether prospective buyers are serious or just casually browsing. The best way to do this is by selling potential buyers direct questions about how long they have planned on buying, how they plan on financing the business and how much money they have for a down payment. This kind of informal interview will allow you to determine early on whether the prospect is worth pursuing.

Step 4: Negotiating and Closing the Deal

Once you have found a promising buyer who checks out, the issue of negotiation will undoubtedly come up. Consider this: In a typical business sale, the negotiating skills of the buyer and seller can result in dramatic swings in the final selling price - regardless of how diligently the seller has prepared the business for sale. If the seller isn't up to the task, all the work that has gone into the listing can be undone in a single negotiation session.

And unfortunately, that's just what is happening to many sellers who decide to sell on their own. The good news is that it doesn't have to be that way. Equipped with a basic understanding of the negotiation process, business sellers acting independently can learn how to stand their ground and get they deserve. Other business intermediaries, including business supervisors, and/or attorneys and accountants can be valuable resources during this phase of the process.

The overarching principle of successful negotiation is doing so from a position of strength. Business sellers should come to negotiation fully prepared with well researched, documented valuation information. This way, you will have a strong basis for sticking to or very near the price you are requesting.

Listing on an online marketplace also helps negotiation in that it stirs competitive interests from possible buyers. If buyers can see there is a lot of activity surrounding a listing it will only help to create more demand for your business.

Once all the specifics have been properly taken care of, you can rest assured your business will go on successfully while you pursue ownership of a new establishment or move onto other ventures.

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Successful Online Business for Sale Listing

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Each year, thousands of business owners decide to sell their business for a variety of personal and financial reasons. Whatever the cause, selling successfully requires the owner to think creatively in terms of attracting the most potential buyers and weeding out the ones who are not really serious about buying.

To realize the most success in selling your business online, it is imperative to maximize the effectiveness of your listing. A well thought out and well written listing will allow you to attract more prospects and better sort out the serious buyers from the rest.

By keeping in mind the following "8 commandments of quality online listings," you can help ensure that your business attracts the best potential buyers, and that the selling process goes quickly and smoothly.

1. Include Key Financials

It is essential to include as much financial information in your listing as you can. Including the numbers, such as revenue can greatly increase the amount of views for your business listing, as this is the most common way potential buyers search for businesses.

Disclosing the financial information of your business in a listing is likely to build confidence in potential buyers. If you do not include the information, buyers might get the impression that you have something to hide and quickly navigate away from your listing.

2. Provide Maximum Geographic Information

Sellers should provide as much geographic information they can without revealing the exact identity of the business. Most buyers search at the county level, and by hiding the county of your business in your listing, you eliminate your listing from their search results.

Many sellers are hesitant to provide details on their business's location, but doing so will almost always result in more messages from potential buyers.

   
3. Be Creative with Your Headline

Your headline is what gets potential buyers to click on the listing in the first place. An eye catching, well thought out headline will help separate your business for sale listing from the pack. Before listing your business, put yourself in a buyer's frame of mind. It will help to draft a list of the qualities of your business that would most make you want to buy.

 If you bought the business from someone else, remember what features first made you interested. Was it an ideal location, or a great looking space? Decide what is best about the business you are selling, and prominently feature those details in a headline that effectively conveys what is special about the business.

       
4. Include the Right Contact Information

It is crucial to include a phone number in your business listing to reassure potential buyers and maximize contacts. To maintain confidentiality, though, it is not a good idea to provide the phone number of the business you are selling. Instead, provide a personal or alternate phone number people can call to inquire about the listing.

Although it can help to provide a variety of ways in which a buyer can contact you if interested, you should generally avoid including your personal email address to protect against spam and protect confidentiality. Instead, it is a good idea to create a new email address specifically for responses from your listing. If you do so, make sure you check the account daily to avoid missing any responses.

Whichever forms of contact you choose to include in your listing, be sure you have a strong follow up process. Respond to questions about your listing right away, and if prospective buyers seem serious, do not keep them waiting too long for information or they will likely become discouraged and look elsewhere.

5. Be Descriptive

The most effective way to instill confidence in prospective buyers and get them to respond to your listing is to use a generous amount of description. When a seller provides very limited details about the business for sale, buyers will probably think it is because the seller has something to hide. In order to ensure prospective buyers are confident in what you are selling, you have to appear confident.

 6. Include Pictures
 
One of the most effective ways to differentiate your business for sale listing from the rest is to include photos. While you should probably not include a picture of the outside or any obvious interior section of your business to maintain confidentiality, there are other ways to mix images into the text.

For example, taking a photo of one of the rooms of your business - making sure to capture its best features - can give potential buyers a good look at what you have to offer without sacrificing too much confidentiality.

Free online images databases such as Google Images can also serve as a useful source of imagery that you can help you create your listing to stand out from the crowd. However, be careful not to select images of any part of any specific business that is not yours. Instead, find generic images. Does the business your selling offer dining? If so, try to find a generic image of a table setting showing the kind of food the restaurant serves, for example.
 

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How to Negotiate on Price When Selling a Business

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Any owner can put a business on the market, but selling successfully is another story. In a typical business sale, the negotiating skills of the buyer and seller can result in dramatic swings in the final selling price - regardless of how diligently the seller has prepared the business for sale. If the seller isn't up to the task, almost all the work that has gone into the listing can be undone in a single negotiation session.

Unfortunately, this undesirable situation frequently becomes a reality for many sellers in the marketplace. The good news is that by equipping themselves with a basic understanding of the negotiation process, sellers can learn how to stand their ground and get they deserve.

The overarching principle of successful negotiation is to negotiate from a position of strength. That's sometimes easier said than done, but in today's business marketplace there are many ways for sellers to favorably and accurately position themselves before the negotiation process even gets underway.

Avoid a Distressed Sale

A stressed business is easy prey. Although sellers don't always have a choice about the timing of the sale, many times they do. Unless the business is in imminent danger of going belly up or is being forced to be sold by family circumstances such as death or divorce, sellers should plan for the sale far in advance and be prepared to list it when market conditions are ripe.

Leverage Valuation

The valuation process is designed to provide a rational basis for the selling price. Sellers who throw together a flimsy, guesswork valuation at the last minute automatically put themselves at a disadvantage during negotiations.

Create a Bidding War

Almost everyone knows someone who sold a house above the selling price because more than one buyer expressed interest at the same time. It's possible to create a similar scenario in the sale of a business, but to do it the seller needs to maximize the attention the business receives in the marketplace.

One of the best ways to maximize exposure is to list the sale online. The majority of business buyers conduct their search themselves, and increasingly, the place they do so is on the internet. By listing online, sellers have the ability to customize their listing in ways that can make it truly attractive and boost visibility to stir up competitive interest among buyers, all of which can give the seller the ultimate upper hand in negotiations.

Be Patient

Patience may be a virtue, but when it comes to selling a business it's also a necessity. The owner of a well positioned business should have the ability to wait until the right buyer - and the right price - comes along. If the business absolutely must be sold in a short time period (six months or less), then the sale begins to exhibit the qualities of a distressed sale and the seller will be at a significant disadvantage in negotiations.

The patience factor really comes into play during negotiations when it impacts who wants the sale to happen more - the buyer or the seller. Even though the seller may be anxious to seal the deal, the person who appears to want the sale to happen the most is at a disadvantage.

As more business owners seek to sell their businesses on their own, negotiation skills will continue to become more and more critical. The better sellers can prepare in advance and stand firm on the terms they desire, the greater success they'll have for a smooth and satisfying sale.

Dealing with Your Prospects

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By following some simple communication guidelines when selling your business online, you can ensure you don't get caught up in a communication nightmare.

 
Step 1: Be Knowledgeable About Your Business

Know your business before you put it up for sale.
It sounds simple, but the fact remains that many business owners list their establishment for sale online without having a clear grasp on how much their business is worth and what facts to communicate to potential buyers.

The first step is to get all the financial information of your business in order, including cash flow and revenue numbers that span from the time you first owned the business to the current day. After you list your business for sale, you'll undoubtedly have to field legit financial questions from potential buyers, and you won't want to come off looking irresponsible or uninformed about your own business.

When you have made yourself an expert on this basic information, you can confidently put your business on the market and begin communicating with prospective buyers.

 
Step 2: Identify Serious Leads
 

Once you have listed your business for sale online, it's time to sit back and wait for the buyer leads to come in. Unfortunately, it is likely that some of these leads will not be from serious prospects, and it will be up to you to decide if an inquiry seems legit enough for you to devote a large amount of time and effort into following up.

Once a potential buyer has made initial contact, you can ask them some simple questions to quickly gauge how serious they are about going through with a transaction. These types of questions include how long they have planned on buying a business, how they plan on financing the business and how much money they have available for a down payment. If the contact provides vague or unconvincing answers, you'll probably not want to invest too much time and effort into keeping the conversation going.

Step 3: Keep Communication Flowing Through Purchase and Beyond

Now that you have found the perfect buyer, you'll have to continue effective communication through the purchase process and after.

After the business description and purchase price have been described, the purchase agreement typically deals with how the buyer intends to pay. Most buyers cobble together a variety of payment methods to complete the sale, each of which needs to be clearly discussed and identified.

Buyers should look for a clear schedule of payments with escrow agreements attached to any payments that are due prior to final closing. If the seller is financing part of the purchase price, the repayment schedule should also be described along with collateral requirements and interest details. This can become a sticking point if the seller expects to secure a first collateral position for assets that will be held as security by other lenders.

When a business is sold, the seller makes certain promises to the buyer in the form of warranties. These warranties are an extension of due diligence for hidden threats or liabilities that would devalue the business or its assets.

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Keeping it Confidential

Confidentiality is usually critical to the business selling process. Confidentiality is important for a variety of reasons. Customers, competitors, employees and creditors all will have different reactions to finding out that your business is for sale. Buyer prospects themselves often react negatively to a business opportunity that has not been kept confidential.

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As a seller, you may not want your employees, customers, competitors and creditors to know that your business is for sale. Employees, fearing the unknown, may quit. Customers, fearing a decline in performance, may switch. Competitors may spread rumors. Creditors may get nervous. For your business, a breach of confidentiality may spell disaster because any one or more of these reactions can happen.

But, even if confidentiality doesn't seem important in the short run, at least one major problem may arise when the business remains on the market for an extended period. If your business is known to be for sale for too long, it may appear to be 'shopworn merchandise' to buyer prospects. This drives the price down. It may even make your business impossible to sell.

Here are the three steps most supervisors take to ensure maximum confidentiality for their clients.

Step 1: Prepare Blind Ads and Listings

'Blind' ads and listings are used by almost all business supervisors. However, writing effective blind ads and listings is difficult. An ad or listing that's too general won't get a good response.

A 'blind ad' is an advertisement that camouflages the identity of the business in some way. A 'blind listing' is a camouflaged description of the business in a multiple listing database. The goal of any business opportunity ad is to attract buyer prospects. When the identity of the business has to be guarded, though, an ad has to be cautiously worded. When this happens, the ad may lose its effectiveness. The less specific it is, the more it looks like every other ad.

"Manufacturer for Sale. Call Supervisor." will get a minimal response. Describing the business for sale as a "Manufacturer of low tech product" will get a better response. "Manufacturer of low tech product in high tech market" will get the best response. Adding details to an ad usually improves response.

The more details you add, however, the more you risk breaching your own confidentiality. Remember that there may be competitors and employees reading your ad. They can be pretty creative in assembling information from different sources! This is especially true if they already suspect something.

The business supervisor usually has many businesses for sale which attract buyer prospects. Buyer prospects respond strongly to ads which indicate that the supervisor has a wide variety of business opportunities, even if the individual business descriptions are vaguely worded. The supervisor can then mix and match buyer prospects and listings.

The supervisor may also have more than one like kind business for sale, further helping to mask the specific identity of any particular business. If a supervisor advertises five manufacturers, for example, buyers will call on the ad anyway even though no more information is provided. The fact that the supervisor has five such opportunities is sufficiently compelling to get the desired response.

Step 2: Pre Qualify Buyer Prospects

Screening and pre qualifying buyer prospects is perhaps the business supervisor's most valuable service to protect seller confidentiality. Make sure this is done in your business selling process. Establish a process of screening and pre qualifying prospects before the first ad appears.

Neither consultants nor sellers can afford to spend time answering detailed questions posed by these often well intentioned, but nevertheless unqualified, 'tire kickers.' If you are selling without a supervisor, don't forget to establish a separate phone service, email or postal address to receive inquiries. You don't even want to think about handling buyer responses without a buffer between you and the unqualified tire kicker.

Prepare a form to record information about the buyer prospects as each contact is made. Prepare a short 'script' to answer the questions you anticipate without giving away the identity of your business. It will take some experience before you know what questions buyer prospects will ask. Also give some thought to what type of buyer you want. How much cash do they need to buy your business? What minimum skills and background must they have? How are you going to ask for, and collect, this information?

Step 3: Register Buyer Prospects

Supervisors require buyer prospects to provide background information about themselves and to sign a confidentiality (or non disclosure) agreement. Our simple form asks for the buyer prospect's contact information, acquisition criteria, and financial disclosure of cash available for the business purchase.

It can be tempting to relax buyer prospect qualification requirements. Both supervisors and sellers are naturally enthusiastic about new prospects. It is always exciting to have the phone ring. This feeling is even more intense if there hasn't been much response to the marketing effort, or if a negotiation has just fallen though and the seller is 'on the rebound.'

A sincerely interested and qualified prospective buyer will almost always be courteous, understanding and compliant with a registration and pre qualification process that is fair and reasonable. It is critical, even at the level of the smallest business, that you know who is trying to buy your company.

Sell it Yourself or Hire a Business Supervisor

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The biggest issue to consider is that any transaction, no matter how straightforward or simple, will take time and many hours of your actual involvement in meetings, discussions, negotiations, reviewing documents and other time consuming phases of the process. You need to ask yourself if this will distract you from continuing to operate your business. Although your goal is to sell the business, what if it doesn't sell? The last thing you want is to lose focus on your business for an extended period.

Using a Business Supervisor

 

The key benefits to hiring a supervisor are:

1. They allow you to run your business while it is being marketed for sale
2. They can be a good buffer between you and the buyer
3. They can handle the flow of documentation
4. They have done it before and have likely dealt with most challenges that can arise

Selling It on Your Own

Even without a supervisor's involvement, every transaction has intermediaries or at least should such as attorneys, accountants, mentors, advisors and business associates.

Here are a few things to consider before deciding:

• Do you really have the time to do this?
• A business sale involves a lot of preparation. Are you willing to properly package the business and invest in the necessary materials to do so?
• Do you have access to an experienced transactional attorney who can assist you and at what cost? On this note, while every attorney will claim to be a "deal maker" not a "deal breaker", many are in the latter category.
• Are you comfortable making all of the decisions you will face in the process?
• Have you ever sold a business before?
• Will selling it on your own take away from the day to day running of the business?

Summary

Ultimately I believe that the decision should come down to timing. If your business has just a few employees or is the type where you are heavily involved everyday, I would absolutely recommend hiring a business supervisor. If, on the other hand, you have sold a business or two before and have the necessary resources to commit to this project then it may be worth it to first attempt it on your own. However, if you do not generate a lot of activity or have a pending sale within three to four months, be humble and engage someone who does this for a living everyday.

http://www.2misi.com/article/2012/07/sell-it-yourself-or-hire-a-business-supervisor

Items to Consider When Deciding to Sell on Your Own

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In the world of real estate, selling without the assistance of a real estate agent has received a lot of attention. But is it really a good idea to try and sell your business on your own?

Is it possible to sell your business yourself? Absolutely, but it's not for everyone. But in most, the smart move is to hire a professional business supervisor to list your business and locate pool of potential buyers.

Business supervisor can add a lot of value, most importantly by maximizing the selling price of your business. Here are just a few of the things they bring to the table that you may have trouble doing on your own:

• Setting the Selling Price. Anyone can set an selling price for your business. But it takes experience to set an selling price that is neither too high nor too low for the marketplace. Although your business supervisor will work to get the highest possible price for your business, he also understands that the price needs to be at a level that allows buyers to meet income and cash flow requirements right out of the gate.
  
  
  Even more, a good business supervisor will be able to adjust selling price that may arise over the course of negotiations (e.g. cash sale vs. partially financed, finance terms, etc.).
  
  
• Laying the Groundwork for Negotiation. Their experience in business sales gives them invaluable insights into the minds of buyers and the workings of the marketplace itself. Most business supervisors are especially adept at developing a negotiation strategy that drives the sale toward its completion and enables the seller; to achieve your exit goals. But creativity and expertise aren't the only negotiation related benefits you can gain from a business supervisor. Many sellers also find that business supervisor give them a much needed objective perspective throughout the negotiation process.

• Marketing Your business. If you think marketing a business consists of placing an ad in the local classifieds, then it's definitely time to hire a business supervisor. Marketing a business is a highly involved and complex process; and business supervisor are experts at doing it right. A marketing strategy can include a variety of tasks including the preparation of a business plan, the compilation of promotional materials and the analysis of target markets. An additional wrinkle comes into play when the seller needs the sale to remain confidential for business or personal reasons. By limiting marketing efforts to a narrow band of qualified prospects, the business supervisor can maintain a low profile while ensuring that the right people know your business is on the market.

• Pre-Qualifying Buyers. As you might expect, there are a lot of tire kickers out there in the business for sale marketplace. I've seen too many sellers invest time and energy in a prospective buyer, and then find out later that he lacked the capacity and genuine desire to actually purchase the hotel.
  Business supervisor are extremely knowledgeable about which buyers are serious and which aren't, and just as importantly, which buyers possess the financial resources and skills to actually complete the transaction. Business supervisor possess the expertise and processes to quickly cull out the tire kickers and unqualifieds before they sap valuable time and energy from your sales process.

At the end of the day, it's your decision whether to hire a business supervisor or to attempt to sell your business on your own. Just make sure you know what you're getting into; be realistic about your skills and the time commitment it will require.

http://www.2misi.com/article/2012/07/items-to-consider-when-deciding-to-sell-on-your-own

Selling a Declining Business

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http://www.2misi.com/article/2012/06/selling-a-declining-business

It always amazes me when I meet with potential sellers whose businesses are in decline and they are surprised learn that buyers will not pay them based on their "glory days" of the past. Sometimes they're shocked to hear how little value their business may bring in the marketplace. The small business market is not ripe with turnaround experts. Buyers are mainly looking for stability, growth is a bonus.

Before we get into the meat of the article, you need to know that the best time to sell a business is when it is doing well, very well. It is far more difficult to generate any excitement when you bring a declining business to market. However; if you're faced with that predicament and must sell the business, here's what you need to know and consider:

• Can you resurrect it? If so, at what cost and how long will it take? Unless you have no choice, it may very well make sense to dedicate yourself for a year or so to bring the business back up. Doing so will clearly demonstrate to prospective buyers that the business can grow.
• Be completely honest with any prospective buyers - explain to them precisely why the business has declined no matter how difficult it may be for you.
• Spend some time to write down all of the reasons you believe contributed to the decline, what you would do differently if you could go back in time, and what can be done now to repair the damage. This will serve to be a very useful document to the buyer.
• Consider offering a longer transition/training period to the buyer although they may actually want you around for less time, but at least offer it.
• If you find a genuinely interested party, work to get a deal done somehow. Good buyers are hard to find. There are a ton of businesses for sale. If your business is not doing well, and you have an interested party, you may not come across another again.

4 Things Business Supervisor Know That Business Owner Don't

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Timing Is Everything

The timing of a business sale can be tricky. There really is no perfect way to predict how the broader market will change in the coming months and what effect that will have on your client's business. The first quarter of the year (January - March) is the busiest time for business transactions, as both buyers and sellers take advantage of the new year to pursue their goals. Thinking through the optimal timing to list, show, and close a business for sale transaction can help your client maximize his or her outcome.

Seller Financing is a Must

Obtaining financing for a business purchase from banks is still challenging for most, if not all buyers. As a result, most buyers still need help, as very few can pay all cash for a business purchase. Beyond increasing the likelihood of a sale and maximizing the sale price, by financing a part of the purchase your clients also have the benefit of locking in a fixed income stream. Go over this process with the seller and develop a financial plan to make sure the client understands the implications.

Callers Aren't Always Buyers

This is a very important issue as business sellers can often be overwhelmed by a high number of inquiring buyers. Be sure to warn your client that many of these callers may not be viable candidates and, in fact, could be competitors snooping for information on your client's business.

Often times, people will call because they are interested in buying a similar business soon, but may not have the financial resources to make a purchase now. By weeding these people out early, or by hiring a business supervisor to handle these details on your behalf, your client will have more time to concentrate on quality buyers.

A Done Deal isn't the End

In most small business sales, the signing of a contract isn't the end of an owner's obligations. Former owners often stay on for a negotiated period of time to help advise and guide the new owner. 

http://www.2misi.com/article/2012/06/4-things-business-supervisor-know-that-business-owners-dont

How to Time the Sale of Your Business

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http://www.2misi.com/article/2012/06/how-to-time-the-sale-of-your-business

Timing the sale of a business can be a stressful process. In today's economy, it's nearly impossible to predict your business's financial future, let alone its value on the open market. But smart business owners also know that timing is everything. Selling either too early or too late can lead to a substantial amount of money being left on the table. So while you won't be able to control the economy, there are certain steps you can take to make sure the timing of your sale maximizes the selling price.

Being ready to sell when that time comes can lead to more interest from buyers, more offers and ultimately, a higher selling price. So whether you are looking to sell soon or farther down the line, here are some considerations on which you should focus.

Sell at Peak Value

Selling at "peak value" is, of course, easier said than done. Most business owners will find it hard to consider selling when things are going well, but that could be precisely the best time to get out. A growing, expanding, smoothly running business will be most likely to attract multiple buyers, creating an auction like atmosphere that will often lead to a high selling price. Too many owners wait until a major customer or key employee is already lost before trying to get out as well. Buyers will be aware of these types of situations and may use it against you in the negotiation process.

While that is the ideal situation, many business owners have been dealing with declining numbers for the past few years, giving them little leverage for a sale.

Even if you don't plan on selling for many years, the time to start building value is now. This includes everything from organizing your financials and improving the physical state of the building to training capable employees to manage the business in case of your departure. These preparations will prove especially important if an unforeseen personal or business crisis forces a quick sale.

Pick the Right Time

You should know better than anyone when your financial situation will look the best each year. A typical business sale takes 8-10 months. Plan that timeline into your strategy. As already mentioned, you want your business to appear as financially strong as possible. Make sure that you're hitting your busy season just as potential buyers will be checking details and beginning the negotiation process.

This may also fit with planning for transition to a new owner during a less busy or important time of year, when the new buyer will have time to learn the business without the potential to make costly mistakes at the outset.

Selling a business is something almost every owner will have to experience at some point. Whether you are planning to retire or to start another business venture, it's important not to rush into the sale process. Take your time to plan an exit and make sure your business is heading in the right direction come sale time. As they say, timing is everything.

The 7 Questions Every Buyer Wants Answered

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http://www.2misi.com/article/2012/06/the-7-questions-every-buyer-wants-answered

There are seven common concerns that almost every prospective buyer brings with them.

Is The Business Right for Me?

 

This is probably the only one of the seven that you cannot influence greatly. That is something the buyer must decide however; you can clearly assist them in reaching their decision either way. You must decide before you bring the business to market what the ideal buyer profile will be. This is not just someone who has a bag of cash. Even if they do, if they determine the business is not suited to them, there's no deal.

If you have a good idea of the skill set the new owner should possess then you should remain committed to your convictions and let any prospects know when they first contact you. If they don't possess the key skills to operate the business, you'll avoid wasting a lot of time meeting with the wrong prospects. Your supervisor will likely be conducting the same skill pre qualification as they too do not wish to waste time.

Similarly, don't over engineer the criteria or allow your ego to stand in the way. Unless there are specific professional licenses required to operate the business, most often solid business skills, with perhaps a specialty in one area (i.e. sales, marketing, operations, product design, etc.) will be the dominant skill necessary for a new owner to be successful.

Are The Numbers Provable?

One of the most frequent comments I get from buyer clients is that they have seen too many businesses where the seller cannot prove the numbers. So your strategy here is simple: If you cannot prove it, they won't pay for it, so only represent what you can back up.

If you have unreported income in the business, don't expect to get paid for it. You already received the benefit from the tax department.

Provide buyers with detailed proof to validate the financials you've represented and you will clear a massive hurdle. Further, as we discuss in other articles on this website, if your books and records are in disarray, don't put your business on the market. Take the time to organize them properly and you will reap the benefits.

Is It Priced Right?

While a smart buyer may be willing to pay a premium for a good business, nobody will overpay. Buyers need to be certain that the revenue and profits can be sustained, they can service any debt, pay themselves a reasonable salary, and ideally, have enough left to grow the business. No matter how good your business may be, the price and terms must fit within the prescribed borders for this to be a good investment.

What Does The Future Hold?

A business will almost always be sold valued based upon past financials, but the decision to buy will be based upon the future potential of the business. While some buyers consider growth to be their main criteria, at the very least the majority of buyers want to know that history will repeat itself. In other words, the business is sustainable, that there are no looming threats that could drastically alter the business or impact it negatively after they buy.

By presenting a realistic picture to the buyer about the future, and being open about possible challenges, it will go a long way in soothing their concerns. In today's information age, chances are that any potential hazards will be identified and so it is always best to inform them of these matters early on if they are material to the transaction. By the same token, you want to present the business in a compelling fashion that demonstrates that all the parts are in place for them to takeover and continue to be successful after your departure.

Will Customers and Employees Remain

This is especially important in businesses that may have a limited number of active customers or where there is one or a couple of key employees. The last thing a buyer wants is to experience losing a key customer or employee and find themselves out of business shortly after they get into business. Due to confidentiality, it may be difficult to provide them with the complete assurances they need but at the very least, you'll want to have mechanisms in place to provide some reasonable protections for them.

In the case of key employees, the buyer will more than likely want to meet them prior to closing and so too with any major customers. You may not be fully comfortable with this idea which is understandable but you may need to put yourself in the buyer's position for a moment to understand. As such, you need to structure the milestones of the deal to allow for this event. For example, they may only meet a key employee after all other deal contingencies are satisfied. 

After all, if you are going to be participating in the financing, you want them to be successful.

If The Business Relies on Location, Will the Lease be Assigned?

Landlords can sometimes derail your sale. I have witnessed and experienced it personally. You would think that every landlord's agenda is strictly to have their premises filled with timely paying tenants and to a large extent this is precisely the case. However; there are times when a landlord may want to alter the premises, or wants personal guarantees from a new owner, or may just be a pain when it comes to assigning the lease.

Before putting your business on the market, check your lease assignment clause to see if there is verbiage that reads that an assignment "will not be unreasonably withheld". Also, you may want to consider meeting with the landlord to see if they will add some option terms to the lease (even a three to five year option) but you must couple this with raising concerns about the sale. If you have less than two years on your lease, and the business needs to be where it is, you will want to get a lease extension before taking it to market.

Are There Any Hidden Problems?

Every business has secrets. Problems are common, even if you don't perceive them as an "issue", a buyer may. These will be uncovered by any diligent buyer. The best strategy is to be upfront with prospects about these potential issues so you can deal with them early on. Usually a work around can be figured out. If you wait too long, or try to hide them and they do surface (and they will) you will have a very difficult time resolving them and will likely lose all of the credibility that you have established with any prospective buyer.

This comes back to what I believe it takes to get deals done: when the seller wants to sell and the buyer wants to buy, and the parties trust each other, it's almost impossible to stop them from getting a deal done.