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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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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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.

How to Time the Sale of Your Business

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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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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.

 

Are You Ready to Sell Your Business?

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If you've gone this far, then selling your business has aroused enough curiosity that you are taking the first step.

Question 1

The first question almost every seller asks is: "What is my business worth?" Quite frankly, if we were selling our business that is the first thing we would want to know.

Question 2

The second question you have to consider is: Do you really want to sell this business? If you're really serious and have a solid reason why you want to sell, it will most likely happen.

You can increase your chances of selling if you can answer yes to the second question: Do you have reasonable expectations? The yes answer to these two questions means you are serious about selling.

Prospective buyers eventually want to review your financial figures. Buyers want to see income and expenses. They want to know if they can make the payments on the business.

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Negotiating Your Way to a Great Deal

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When it comes to buying a business for sale, the most exciting and anxious moments can be experienced when the time arrives for you to enter into negotiations and made an offer. Just like every other aspect to the buying process, your preparation will determine your level of success.

Negotiating involves many independent personality issues. When dealing with a seller you must bear in mind that this is a very emotional time for them. They are looking to sell a business that has benefited from their hard work and sweat. It can be quite a personal adjustment for many and they do become irrational. They often feel as though they are losing a part of themselves. Be sensitive to their emotions but never at the expense of fabricating a good deal for you.

Find Their "Pain," Soothe It and You Win!

Everybody has their "hot buttons" in a deal. These are the points that, in the mind of the buyer or seller, will make or break the deal. Once you identify them and can find a way to ease their concerns, you'll win. It works all the time.

The former method is usually more effective only because you can read into a variety of issues once you see the structure of a counter offer. However, asking them directly is a very accurate way to measure this as well.

Get as close as you can to their figure but, in exchange, get reduced interest rates on the balance of sale, extend the first payment to 60, 90 or 180 days after closing, negotiate the first year without interest, include the ability to payoff the note at anytime without penalty or to make periodic lump sum payments towards the principal. There are tons that you can do once you know their pain.

Preparation is The Key To Successful Negotiating

The average purchase agreement has over fifty individual clauses to be negotiated. There is far more involved than simply agreeing upon the price, down payment and terms.

Structuring The Offer

The offer will, in most cases, begin the ball rolling on a potential acquisition. At times, this is the most effective way to gain insight into the guts of the business. You may also be dismayed to learn that you may in fact have to make an offer without all of the data that you would like to have. As an example, you may only gain access to the true financials after an accepted offer has been put forth.

This is fine; no need to panic. You may be asking: "how can I formulate an offer without all of the information?." A good question in theory, but this is not always reality. Consider the fact that sellers may be exposed to an onslaught of buyers and, not knowing which ones are serious, they may choose to hold back certain information.

On the other hand, don't be ridiculous. Table something that forms the basis of a future meaningful conversation. Your offer is, to a certain extent, a tool to prod the seller into playing his or her hand and to get them to demonstrate their pain; the areas that are fundamental to the deal - from their perspective.

There's nothing wrong if they are insulted. They may or may not be, and you can always refine your offer as the case may be. Additionally, a buyer's value of the business will certainly differ from a seller. That's where negotiation comes into play. There are no hard rules for what the terms of your offer should be. Each situation is different. While it's not advisable to make unlimited offers expecting one to catch on, you must make offers. Don't over engineer each potential acquisition. 

Once a business is of interest, you've done your homework and you determine that you would, under the right conditions, like to buy the business, get your offer in.

Generally, once an offer is accepted, you will have a certain number of days to perform the financial due diligence. Allow yourself enough time to conduct this.

Lawyers, Accountants and Business Supervisors - Everyone has an Opinion

Lawyers cannot negotiate your deal for you. They can certainly help to ensure your protection from potential liabilities but when it comes to negotiating the actual business deal, they are definitely not the ones to act on your behalf. You'll want to hear their point, but their input should be reserved for the areas in which they are experts: the legal aspects of the deal.

As for accountants, they too have their role: the input from a financial point of view and tax consequences. Leverage their expertise as well, but do not let them influence the actual business deal.

Business supervisors will stay by your side right from the beginning to the end of transaction and gives you valuable feedback along the way to avoid pitfall.

The Last Word

Great negotiators are not born; they evolve. Your effectiveness will increase over time. Be creative. Be reasonable. Keep the end result of putting a good deal together in your mind. Don't lose patience. Don't be confrontational. If there is tough news to deliver, let your business supervisor do it.

How to Successfully Buy a Business Online

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Thinking of turning your dream of starting a business into reality? Realizing the dream of starting a business, though, can be challenging without the right know how. Most small business buyers have never purchased a business before, and it can be difficult to know where to start. Going into business for yourself will undoubtedly require large amounts of commitment and drive to overcome fear of the unknown, but keeping four critical factors in mind can help ensure success when investing time and money into a small business.

Use Online Resources

The easiest way to learn about your options is to research what's available on an online business marketplace. Newspaper classifieds include a limited amount of the businesses for sale in one immediate area, while an online marketplace is more expansive. This kind of site offers a database full of available businesses in any area, which means that you can search locally or anywhere in the country if you are considering a change in location.

Be Savvy in Dealing with Sellers

Once you've located a business that interests you, contact the business owner. Make a list of any questions not answered, and be sure to get all the information you need from the seller. For example, it is a good idea to ask the reason why the business is being sold. Also, be sure to ask the seller to provide documentation for any numbers provided.

If the business seems like a good fit after receiving the answers, ask to view the business firsthand. If possible, visit the business without identifying yourself as a potential buyer to make sure you are satisfied with its appearance and location.

Don't be afraid to negotiate. Businesses generally sell for up to 25 percent of the seller's initial selling price, so there's no need to settle for numbers presented to you at the start without question.

Follow Through with Due Diligence

Once you've thoroughly communicated with a seller and all the information checks out, it can be tempting to want to speed up the process and sign a contract as quickly as possible. While the prospect of finally owning a business is exciting, there is still a need to work out contingencies. This process is known as "due diligence."

Although the numbers might sound good to you, it would be a good idea to bring in outside professionals such as business supervisor to validate them.

Embrace Lifestyle Change

Business owners often discover a new sense of freedom and purpose. They won't have to deal with a boss, their schedules - while less predictable - can be more flexible and a great sense of pride can come from seeing the business through to greatness.

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