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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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.

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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.

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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. 

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Business Supervisor - How They Can Help You

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Business supervisor almost always represent the seller or the deal in a transactional role. The seller pays their commission and even if they are assisting you in the process, they may in fact have a fiduciary duty to the seller. This is not to say that they won't provide you with helpful advice. Keep in mind that business supervisor do not work like real estate agents in every sense.

Even though you consider yourself a very savvy business buyer, there are three things that a business supervisor can do that are very helpful.

Business For Sale Listings

They can provide you with access to business for sale listings and details about the business that you may not discover on your own.

Always Good to Have a Buffer Between You and the Seller

They can be a conduit to help deliver bad news to the seller. There may be instances where you have to retract or modify an offer and certainly times where you'll need to adopt an aggressive negotiating position. Since you'll most likely need the seller to train you after the purchase, it's not a good idea to aggravate them too severely. As such, let the business supervisor deliver the bad news.

The Paperwork is Astounding

A business purchase, no matter how small, requires a tremendous amount of coordination and document chasing. The data you'll need from a seller to evaluate a business, the documentation required to close a deal and the overall chasing that must be done between buyer/seller and their professional advisors, can be astounding. A good business supervisor will be an enormous help putting all of it together.

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Five Questions Business Buyers Should Ask, but Usually Don't

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The average business for sale buyer goes into the buying process with an arsenal of boilerplate questions for the seller. But the questions buyers really need answered are the questions they usually don't think to ask.

To protect themselves, buyers have traditionally relied on a standard list of questions to shed light on the company's historical performance and current financial condition. Due diligence itself is designed to focus the buyer's attention on issues such as financial conditions, business operations, personnel, condition of assets, etc. - all of which need to be addressed before the buyer can made an informed buying decision.

But a growing trend in the business for sale marketplace is making it necessary for buyers to ask a new set of questions. Business supervisor continue to play a vital role in the business marketplace and participate in a substantial number of business for sale transactions.

For some buyers, the lack of business supervisor expertise can ultimately lead to a purchasing decision based more on gut feelings than facts. For those business buyers unsure of their ability to make a sound purchase decision on their own, professional business supervisor can play an important role.

While answers to the regular financial and operational questions are still crucial, there are five other questions buyers also need to ask.

Question #1: "When Did the Owner Decide to Sell the Business?"

The reason behind the owner's decision to sell is less important than when the owner decided to put the business on the market.

Ideally, the answer buyers should look for is that the listing didn't arise suddenly, but came as the result of a well thought out, multi year plan conceived by the owner as a means of achieving his personal and business goals. If that's true, the owner should be able to provide the buyer with a copy of the plan upon request.

But if the owner's decision to list the business happened quickly, that could be a red flag that the business is in trouble, that there are economic threats on the horizon, or that the owner hasn't taken the time to properly prepare due diligence materials.  

Question #2: "What Valuation Method Did the Owner Use to Determine the Selling price?"

In a typical business for sale transaction, the buyer and the seller each perform their own valuation of the business' worth. Many sellers assess their business' worth by way of an asset based valuation method simply because it is the easiest valuation method. Unfortunately, it is also the least accurate way to determine a value for small businesses. Income capitalization methods are equally unreliable for small company valuations.

Instead, savvy small business buyers utilize a multiplier valuation method based on the owner's benefit. If the seller also employs a multiplier valuation method, both parties enter the negotiation process on the same page. If not, the negotiation process will likely become an exercise in apples and oranges. The buyer and the seller will both experience frustration because they are unable to agree on a common basis for valuation. 

Question #3: "What Does the Owner Want to Walk Away With?"

Although it may seem unlikely that the seller will disclose his bottom line before the negotiation process has even started, it's important for the buyer to make an effort to discover what matters to the seller.

At the very least, buyers who are willing to ask this question will begin to get an idea about the seller's non cash motivations. The vast majority of small business owners are just as concerned about the business' future as they are about how much money they will make on the sale. The seller's non cash motivations can be a powerful negotiation tool for buyers. When the negotiation process hits a wall, knowing everything that is important to a seller can sometimes close the deal.

Question #4: "What Would the Seller Do to Increase Sales and Profits"

More than anything else, buyers need to create opportunities to inject a dose of reality into the buying decision. Presumably, the person who is most qualified to offer a realistic perspective about the business and its future growth prospects is its owner. Yet sellers often prefer to paint a rosy portrait of the company rather than simply telling it like it is.

One of the ways a buyer can break through a reluctant seller's defenses is to invite the owner to make suggestions about how to increase capacity, market share and profitability. With the right approach, a buyer's appeal to owner expertise can change the seller's posture from defensive to collaborative.

 

Question #5: "Is the Seller Willing to Sign a Non Compete Clause?"

An established customer or client base is one of the reasons existing businesses are so attractive to buyers. That incentive disappears if the owner's intention is to sell the business and take the company's customers with him.

There is no surer way to surface a seller's real motives than for the buyer to request a contractual non compete clause. If the seller refuses, the buyer should proceed with caution since the business' customer base may be soft. On the other hand, if the seller agrees without blinking an eye, the existing client base can probably be used as a reliable gauge for financial projections.

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