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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