Business Seller FAQ’s
Common Questions and concerns regarding Selling a Business:
Will my business be marketed outside the Oregon & Washington area?
Through our affiliation and membership at (IBBA) International Business Brokers Association, our listings are available to all members of IBBA nationally and globally. However, we only co-broke with Certified, licensed brokers including the international community of brokers. Therefore, we are always in compliance with the Real Estate and Commercial laws here and abroad….. (at no extra charge to you)
What creates value in my business?
There are a lot of misconceptions about what enhances the value of a business.
Value Drivers Are:
- History, and longevity
- Historical profitability
- Good books and records that are Defendable
- Location and accessibility
- Staff tenure
- Market desirability
- Potential-future earnings and growth opportunities
Common misconceptions are:
- Rule of thumb guesses
- A business is valued at 1 to 1.5 times gross sales
- Business is worth what I have put into it and want it all back
- My business is worth $_______. What I need to pay off all debt and retire
What steps are needed to successfully sell my business?
To properly list, market, negotiate and close a sale successfully, the common steps in all transactions are:
- Appraise the value of the business and where applicable, real estate
- Prepare Market materials
- Market the business confidentially
- Pre-screen buyers and present the business to qualified prospects
- Assist in negotiating the Offer to Purchases and Earnest money
- Assist in securing financing when necessary
- Prepare the Due Diligence package
- Handle and resolve the issues that come up during the Due Diligent process
- Establish escrow
- Close the deal and Celebrate!
Is it true that financing for my business is almost impossible to obtain?
It is true that it is more difficult to get financing, but not impossible…we have several lenders that are still involved in SBA lending and some general commercial endeavors. It is also true that they have tightened the requirements, but this is better for the Seller, since it requires the buyer to be extremely clean financially and a good risk even thought it narrows the number of buyers eligible to purchase a business. Lack of being able to obtain financing is a result of poor planning, lack of preparation before the business was put on the market and due to a lack of Seller’s understanding of the financing options they have. During our Valuation and appraisal process, we analyze the transaction from different angles to determine how a sale can be financed. We have a strong relationship with SBA lenders and know how to solve most financing issues. However, we know that there is money to lend for a solid business and a solid buyer.
How can I sell my business without anybody knowing?
Confidentiality is at the top of our priorities. We believe that it is in the seller’s best interest to keep a pending sale confidential until closing; this keeps the staff from getting panicky and “jumping ship”; suppliers going to all cash; clients loosing confidence in the product or service, etc. Through the process of “Blind Advertising” and pre-screening and the use of an enforceable Non-disclosure and Confidentiality Agreement, we are able to sell a business while maintaining Confidentiality.
I want all cash! Will I still be able to sell my business?
In order for a Seller to enhance their ability to sell at the highest and best price, they need to educate themselves as to the consequences of an “all cash” settlement and keep an open mind about some seller financing as part of a complete transaction. This is especially important in today’s lending market. Seller financing can be structured in a less risky manner and carries tax benefits with it as well. We encourage you to discuss this with your CPA or tax attorney. (If you are completely set against providing at least 10% seller carry back, the likelihood of you ever selling your business is near impossible).
How do you value a business?
We use approved, standard methods of business appraisal and follow standards established by Institute of Business Appraisers. Our appraisal will stand up to lender scrutiny and will defend the established price to a buyer and his/her advisors. The outdated “Rules of Thumb” are at best a guess and do not allow for true representation of your businesses past and future earnings potential. The Business Brokerage industry has evolved greatly over the past 20 years, and more accurate and sophisticated methods of appraisal exist today.
For most businesses, the income approach of appraisal is used because it reflects more accurately the economic benefit a business provides to its owner. It considers the complete business; its income generation ability, location, owners benefits, staff, customer loyalty, growth and future potential, appearance and competitive advantage.
Once we arrive at a Market Value, we present it to a lender for a “sanity check”. They will examine its value from a lender and buyer prospective. A business must be able to generate enough income to support the debt service and provide a decent salary for the buyer. (For the 3 types of appraisals, go to “Business Appraisals/Valuations.)
How long does it take to sell my business?
This is probably the most asked question by sellers. And one that is difficult to answer. However, in today’s economic climate, a realistic timeframe for selling a business from listing to closing the sale is approximately 5 – 8 months. There are many variables that enter into the timeframe factor….and some businesses will always sell faster than others. If a business is on the market for over 10 to 12 months, there is something missing beginning with the listing. The two main things that keep a business from selling in a timely manner is the business is over priced and the lack of financing available for it. Common among sellers is their lack of understanding of valuation methods, causing them to believe that their business is worth more that than it really is. It is very simple, over priced businesses will not secure a buyer, thus wasting precious marketing time and money. A business with defendable pricing and financing in place (even when it is seller financing) will sell in any economic environment.
What are the benefits of using a Business Broker/Intermediary?
Most small privately owned business owners don’t understand the selling process nor the expertise required to successfully sell a business. Due to the complexity of the process, it takes specialized training and knowledge in a multitude of areas: business appraisal and valuation, marketing, advertising, real estate, negotiations, drafting Earnest Money Offer to Purchase documents, Due Diligence, how to deal with CPA’s and attorneys and not to mention facilitating the emotional roller coaster experienced by Sellers and Buyers. Most Buyers are extremely uncomfortable dealing directly with Sellers and Sellers have no experience moving a sale through the myriad of steps necessary for a sale to close. Remember, this may be one of the most important financial decision that a Seller will ever make and a specialty broker is the best professional to ensure that the Seller’s business sells for the highest value in a timely manner.