The Top Three Major Legal Mistakes to Avoid During a Sale

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The business sale process can be complex, which is part of the reason why it makes sense to have expert help in the form of a business broker.  Legal mistakes can be very costly mistakes.  A legal mistake can also bring the entire sale process to a sudden and complete halt.  Let’s take a closer look at what you can do to avoid these kinds of issues when selling your business.

Major Mistake 1 – You Skipped the Non-Disclosure Agreement

Nothing quite invites trouble like skipping the non-disclosure agreement.  If a deal falls through, then you have the NDA backing you up.  This document ensures that the prospective buyer doesn’t tell the world that your business is up for sale.  Never assume that a deal is going through until it actually is 100% complete.  Buying or selling a business is a complex process with lots of moving parts.  There is plenty of room for things to go wrong, and that is why you always need to have an NDA in place.

Major Mistake 2 – You Don’t Work with an Attorney

Let’s be very blunt here, if you are selling a business, then you need an attorney.  Just as there is no replacement for an NDA, the same holds true for working with a lawyer.  It is also vital that you properly prep your business for sale, which means getting paperwork organized and making sure that you have legally checked all your boxes.  Working with an experienced and proven attorney will help you ensure that your business is ready for sale.  If you’re not prepared for the deal, it can make buyers nervous.

Major Mistake 3 – You Failed to Get a Letter of Intent

A letter of intent is a valuable, and necessary, legal document.  Some sellers are reluctant to use it, fearing that it will slow down the momentum of the deal.  However, since this letter works to protect your interest and outlines expectations, this step should not be skipped.  For example, a letter of intent details the termination fee for the buyer, meaning that the buyer can’t walk away without consequences simply because he or she is having a bad day.  Importantly, a letter of intent ensures that you are only dealing with serious buyers.

Many things can go wrong while selling a business.  The more prepared you are before you begin the process, the greater the chances that you will not only avoid headaches, but also be successful.  Long before you put your business on the market, you should begin working with a capable business broker and attorney.  Their input and advice will prove to be invaluable and help you avoid a range of costly and time-consuming issues.

Copyright: Business Brokerage Press, Inc.

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5 Key Factors in Transferring Your Business to a Family Member

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The odds are that you’ve put a great deal of yourself into your business.  Inevitably, the day will come when you have no choice but to walk away from your business and begin a new chapter of your life.  Quite often, businesses are transferred from one family member to another.  In this article, we will examine 5 of the key factors you’ll want to consider when transferring your business to a family member.

Factor #1  Gifting Can Have Numerous Benefits

Will you be selling your business to a family member or simply gifting that business?  Gifting comes with several major advantages, for example, this approach can reduce your real estate taxes.  Also, the gifting process can allow you to maintain a level of control if the agreement is written properly.

Factor #2  The Buy-Sell Agreement

Don’t overlook the importance of the buy-sell agreement, which works to put everything in writing.  You may be tempted to forgo a contract since you are dealing with a family member, but this is a mistake, no matter how close you might be with your loved ones.  A buy-sell agreement adds clarity to the process, which can help to keep confusion levels low and the chances of success high.  When the time comes to transfer your business to a relative, you’ll want an expert to create a document that outlines all relevant details.  It should feature everything from the value of the business and the amount being paid for the business to who will be kept on the payroll to what level of involvement you’ll have once the process is finished.

Factor #3  Seller Financing

Seller financing is quite common among sellers, and when relatives are involved it becomes even more common.  One option is to consider a private annuity.  A private annuity allows for payments to be spread out for many years and can even extend until the end of your life.

Factor #4  Considering the Self-Cancelling Installment Note

In the installment note, it is possible to feature a self-cancelling clause, which can definitely benefit your family in the future.  This part of the paperwork will confirm that if you were to pass away before all the payments have been made, the remaining debt can be attached directly to your will.  If you are a parent selling a business to a child, then one of the key benefits of an installment note is that it keeps your other children from paying excess income tax on your estate.

Factor #5  Transferring a Business to a Relative and the IRS

You can expect the IRS to take a second look when you sell a business to a family member.  The IRS does this to make sure that everything is above board, due to the fact that many past business owners have acted in an unethical manner.  You’ll want to be very sure that every aspect of the sale is done professionally and that you have all your paperwork in order.

A business broker can help you deal the unique particulars that come along with selling a business to a relative.  Every business is different, and every sale is different too.  A professional business broker can help you avoid common mistakes and pitfalls.

Copyright: Business Brokerage Press, Inc.

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Maintaining Confidentiality Throughout the Sale Process

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There are two key ingredients when it comes to selling a business: professionalism and confidentiality.  If either of these two ingredients are lacking, then you’ll most likely run into problems.  Sadly, many sellers see their deals fall apart due to a breach of confidentiality.  You certainly don’t want to be among their ranks.

The simple fact is that a breach in confidentiality can negatively impact everyone from suppliers and vendors to creditors.  For example, vendors could change their terms and this, in turn, could have a major, negative impact on cash flow.  There can be a chain reaction of events that spirals out of control.

The potential negative outcomes of a breach in confidentiality are quite numerous, for example, employees and customers alike could begin to worry about the future of the business.  Employees could begin to worry about the safety of their jobs and begin looking for a new position.  Dangerously, this situation could lead to changes in management and the loss of key employees.  Likewise, customers, fearing instability with the business, could also decide to take the business elsewhere, leading to revenue problems.

Yet another complicating factor comes in the form of the competition.  If the competition hears that your business is up for sale, they could sense blood in the water and look to steal your customers.

Ultimately, a breach could give potential buyers cold feet.  At this point, it should be very clear that protecting confidentiality is a must.  One of the single best ways to ensure that confidentiality is maintained is to opt for an experienced and proven business broker.  Business brokers understand the simply tremendous value of keeping things under wraps.

It may be tempting to try and sell your business on your own, but it is vital to understand that doing so can damage your businesses’ reputation.  A good business broker knows how to shield your business from breaches of confidentiality.  By working with a business broker, not only are confidentiality agreements signed and taken seriously, but also you’ll know that prospective buyers are vetted and fully pre-qualified.  According to an article on Inc.com, broker feedback has revealed 9 out of 10 interested parties who respond to “business for sale” ads are not qualified to make the purchase.  Why would you want to risk giving away key details to these parties?

In short, you’ll have a much better idea of who you are dealing with and how serious they are about buying your business.  At the end of the day, there is no replacement for maintaining confidentiality.

Copyright: Business Brokerage Press, Inc.

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Embracing Retirement and Selling: 4 Tips for a Smooth Transition

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No one works forever.  Regardless of how much you love your business, sooner or later you will have to step away.  Owning a business can be very demanding.  This fact can be doubly true for owner-operators of businesses.  The simple fact is that you’ll have to embrace retirement at some point.

Most business owners have never sold a business before and may not know what to expect.  The good news is that prospective buyers usually like the idea of buying an established business directly from a business owner.  It is key, however, to do everything possible to make selling your business, as well as the transition period, as easy for a buyer as possible.

Prepping your business for sale has many diverse parts that need to be taken into consideration.  Prospective buyers want to feel as though they will have a seamless transition, so it’s in your best interest to evaluate what steps you need to take to make the transition smooth.

You are the world’s greatest expert on your business.  As a result, you are perfectly positioned to evaluate your business so as to ensure that it is both appealing to a prospective buyer and ready to sell.  Let’s take a look at the steps you can take to ensure a smooth transition.

The Top 4 Transition Tips

1. Automate as many processes as possible.

In this way, prospective buyers are less likely to be intimidated by the level of work involved in owning a small business.  The odds are good that many of your prospective buyers have never owned a business before.  One of the best ways to not scare prospects away is to make owning and operating your business as streamlined as possible.

2. Work with your employees, key customers and vendors to ensure a smooth transition.

Anything that can cause a potential disruption may scare off prospective buyers.  Put yourself in the shoes of prospective buyers and think about what may cause you concern if you were evaluating a business.  Once you locate those areas of potential concern, do what you can start to remedy them well before placing your business on the market.

3. Pick out your “second-in-command” before you sell your business.

Having a competent and proven “right hand man or woman” that can step in and essentially operate your business is a very attractive asset to have in place when it comes time to sell your business.

4. Consider working with a business broker.

Brokers are expert in the art and craft of buying and selling businesses.  They will be able to help you evaluate your business and address areas that need improvement so as to ensure a smooth transition.

Taking these steps will not just make your business easier to sell, but it will also shorten the amount of time it takes to sell.  The last thing you want when you are ready to sell your business and retire is for the selling process to drag on forever.

Copyright: Business Brokerage Press

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The Top Two Ways to Purchase a Business without Collateral

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Banks love collateral and for a very simple reason.  If you have collateral, then the bank has something it can take if you fail to repay your loan.  At its heart, collateral is a remarkably simple concept.  However, unfortunately, many people who want to start a business lack it.  All of this leads us to the simple question, “Can I start a business without a collateral.

1. Try the SBA

There are ways that you can start a business without collateral, but you will need some amount of money.  The larger the business, obviously the more money you’ll need.  Those interested in the zero collateral route will want to take a look at the SBA’s 7 (a) program.  This program incentivizes banks to make loans to prospective buyers.  Through this program, the SBA guarantees an impressive 75% of the loan amount.

Of course, the buyer still has to put up 25% of the money in order to buy the business, but for those looking to own a business without having to put up collateral, the SBA’s 7 (a) program is an impressive option.  Perhaps best of all, the cash buyers used can come from investors or even a gift, helping to make this program a potentially great one for first time business owners.

2. Think about Seller Financing

Another option is seller financing.  Sellers frequently get involved in financing.  When a seller is motivated to sell, due to retirement or some other factor, things can get interesting.  Most sellers do agree to offer some degree of financing, so asking for selling financing is not unheard of or insulting to a business owner.  Prospective business owners may even be able to combine seller financing with the SBA’s 7 (a) program.  Correctly used, this path could provide a powerful and useful option.

Speaking of retiring, according to The International Business Brokers Association (IBBA), M&A Source and the Pepperdine Private Capital Market Project, 33% of deals now take place when owners are retiring.  This clearly demonstrates how it is in the best interest of many sellers to consider seller financing.

While the SBA’s 7 (a) program is potentially very useful to buyers, it is important to note that under the program, the seller cannot receive any payments for two years.  Working around this potential problem may very well require some creativity and effort on the part of the prospective buyer.  In the end, it may be necessary to offer the business owner some incentive in order to justify waiting two years for his or her money.

Attempting to buy a business without collateral may, at first, sound like too large of an obstacle to overcome.  However, these kinds of purchases really do happen all the time.  By staying focused, persistent and understanding your options, you will increase your odds of success.  Finally, get as much professional help as possible.  Prospective business owners should consult with S.C.O.R.E., experienced business brokers and others to learn the best way to buy a business without collateral.

Copyright: Business Brokerage Press, Inc.

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Fairness Opinions

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Since one often hears the term “fair value” or “fair market value,” it would be easy to assume that “fairness opinion” means the same thing.  A fairness opinion may be based to some degree on fair market value, but there the similarities end.  Assume that you are president of a family business and the other members are not active in the business, but are stockholders; or you are president of a privately held company that has several investors/stockholders.  The decision is made to sell the company; and you as president are charged with that responsibility.  A buyer is found; the deal is set; it is ready to close — and, then, one of the minority stockholders comes out of the woodwork and claims the price is too low.  Or, worse, the deal closes, then the minority stockholder decides to sue the president, which is you, claiming the selling price was too low.  A fairness opinion may avoid this or protect you, the president, from any litigation.

A fairness opinion is a letter, usually only two to four pages, containing the factors or items considered, and a conclusion on the fairness of the selling price along with the usual caveats or limitations. These limitations usually cite that all the information on which the letter is based has been provided by others, the actual assets of the business have not been valued, and that the expert relied on information furnished by management.

This letter can be prepared by an expert in business valuation such as a business appraiser or business intermediary.  The content of the fairness opinion letter is limited to establishing a fair price based on the opinion of the expert.  It does not provide any comment or opinion on the deal itself or how it is structured; nor does it contain any recommendations on whether the deal should be accepted or rejected.

Fairness opinions are often used in the sale of public companies by the board of directors.  It helps support the fact that the board is protecting the interests of the stockholders, at least as far as the selling price is concerned. In privately held companies, the fairness opinion will serve the same purpose if there are minority shareholders or family members who may elect to challenge the price the company is being sold for.

Copyright: Business Brokerage Press, Inc.

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Are You Asking a Reasonable Price for Your Privately Held Company?

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Placing a price on a privately-held company is usually more complex than placing a value, or a price, on a publicly-held company.  There are many reasons for this fact, but one of the top reasons is that privately-held companies don’t have audited financial statements.

Why are Audited Financial Statements Lacking in Privately-Held Companies?

Preparing an audited financial statement is expensive and, as a result, many companies that have not gone public simply forego the expense.  On the other hand, publicly held companies reveal much more information regarding their finances as well as a range of other kinds of information.

Compared to a privately-held company, a publicly held company can often seem like an “open book.”  Buyers are left with the proposition of having to dig out a lot more information from a privately-held company in order to assess whether or not a valuation or price is accurate.

What Can You Do to Overcome this Factor?

You, as the seller, can help streamline this process.  By having as much information available as possible and having your accountant make sure that your numbers are presented in a manner that is easy to understand and follow, you will increase your chances of selling your business.

Experts agree that there are several steps a seller of a privately-held company can make when he or she is establishing a price or a value.  First, use an outside appraiser or expert to determine a value.  Next, establish what your “go-to-market” price is.  Third, know your “wish price.”  A seller’s “wish price” is the price that he or she would ideally like to see.  Finally, it is critical that sellers establish the lowest price that they are willing to take.  You should know in advance how much you are willing to sell for as this can help a negotiation move along.

The Marketplace Will Ultimately Decide

It is common that the final sale price for the company be somewhere between the asking price and the bottom-dollar price established in advance by the seller.  Yet, it is important to note, that on occasion a selling price may, in fact, be lower than any of the four we’ve outlined above.  At the end of the day, the undeniable fact, is that the marketplace will establish the final sales price.

Here are a few of the areas that you can expect a buyer to review when establishing the price that he or she is willing to pay: stability of the market and stability of earnings, the potential of the market, product diversity, the size of the customer base, the number and seriousness of competitive threats, how broad the customer base is, the relationship with suppliers, the distribution network in place, needs for capital expenditures and other factors.  The more favorable each of these points are, the more likely it is you’ll receive a higher price.

Copyright: Business Brokerage Press, Inc.

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Examining the Mind of the Serious Buyer – 5 Points to Consider

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Are you looking for a way to perfect your presentation?  Understanding what the typical serious buyer wants will help you get your business ready for selling.

Let’s turn our attention to looking at what these types of individuals and entities really want.  After all, your time is precious.

1. An Interest in the Industry

First, prospective buyers will want to have a better understanding of your industry.  Any serious buyer will want to understand the industry as a whole, as well as your existing customers, prospective customers and the strengths and weaknesses of your business.  Key factors, such as threats from competition, will also be a major factor for prospective buyers.

2. Seeking Knowledge about Discretionary Costs

Secondly, expect buyers to take a long look at discretionary costs.  Sellers will often look to reduce their expenses in a range of discretionary areas including advertising, research and development and public relations; this is done to help make a business appear more attractive to a buyer.  However, it is important to note, that a savvy prospective buyer will notice reduction in discretionary expenses.

3. Inquiries about Wages and Salaries

Wages and salaries is another area that receives attention from buyers.  If your business is paying minimum wage or offers a limited retirement program then employee turnover is likely to be high.  Buyers may be concerned that employee stability may be low, which, of course, can potentially disrupt business.

4. Questions about Cash Flow and Inventory

No serious buyer will ignore the issue of cash flow.  Any prospective buyer will want to know that the business they are considering buying will continue to generate profits both now and in the future.

Inventory is another area that will not be ignored.  If your business is carrying a large amount of antiquated, unsalable or simply unusable inventory, then expect that to be factored into a prospective buyer’s decision-making process.  It is best to disclose such inventory instead of hiding it, as it will be discovered during due diligence.

5. Seeking Capital Expenditure Details

Finally, capital expenditures will be examined by buyers.  You can expect buyers to carefully evaluate machinery and equipment to ensure that there will be no expensive surprises looming on the horizon.

These give areas are definitely not the only areas that buyers will explore and investigate.  Everything from financial agreements and environmental concerns to government control will be examined in depth.  You should invest some time thinking about the situation from the perspective of a buyer, as this will help you discover many potential problems and try to secure viable workarounds.  Working closely with a business broker is another way to ensure that you can successfully anticipate the needs of buyers.

Copyright: Business Brokerage Press, Inc.

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Is Now the Right Time to Sell Your Company?

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Like many things in life, timing can be everything when it comes to selling your company.  Every day more and more baby-boomers are now reaching retirement age.  Soon, the market will likely be flooded with companies looking to sell.

According to a 2016 survey of business brokers, 54% plan to exit in the next ten years.  We may be on the verge of a massive wave of businesses hitting the market.  Getting out in front of that wave could be in your best interests. Now very well may be the time to sell.

Are You Suffering from Burnout?

If you’ve been running your business for many years, it is quite possible that you are suffering from burnout.  This issue is remarkably common with business owners and it is also very dangerous.  Owners suffering from burnout don’t invest as much of themselves and their creative energy into their businesses, and that has a range of implications.

Everything from losing customers to failing to keep up with the competition are all possibilities when an owner feels ready to throw in the towel.  The end result is that owners, through poor decisions and inaction, can inadvertently decrease the value of their businesses.  Combine this fact with the fact that a wave of businesses may soon be hitting the market and selling may start looking more and more attractive.

Jump into a Strong Economy

Further, today’s strong economy means that new and unexpected competitors may soon enter the picture.  It is difficult to predict how the marketplace may change in the coming years, but a strong economy means both more opportunities for existing businesses and the potential for greater competition.

Interest rates have remained at historic lows and that could definitely help you sell your business.  Working with an experienced business broker is one way to test the waters.  You may determine that now is the perfect time to sell your business.  There are many factors involved in selling your business, and a skilled broker can help you look at the overall situation at hand and determine when it is the right time to sell.

Copyright: Business Brokerage Press, Inc.

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If You’re Selling, Get Ready to Expect the Unexpected!

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Many experts agree that the best time to prepare to sell your business is when you start your business.  That may sound extreme. However, few business owners reach that level of preparedness.  A simple fact of life and owning a business is that most sales are event-driven.  Factors such as problems with a partnership, health issues, burnout or even divorce can drive a business owner to sell.

Once you’ve made the decision to sell, it is essential that you realize one key fact.  Unexpected events and factors will always rise to the surface. In this article, we’ll explore four key questions that you’ll need to address before selling your business.

 1. What is the Value of Your Time?

Meeting with prospective buyers can be a serious time sponge.  One of the key benefits of working with a business broker is that a broker can take some of the pressure off  of you. They can interact with buyers on your behalf.

A large percentage of business owners are also deeply involved in the day-to-day operation of the business.  Business owners don’t have time to meet with every interested party or take the time to weed out the qualified prospects from the window shoppers.

2. What Do You Want Your Level of Involvement to Be?

Working with prospective buyers is obviously time consuming, but so is knowing every detail about a prospective buyer’s visit.  A seasoned business broker can sift through what information is essential and what information is extraneous. In this way, you only hear about what is relevant and can skip the rest.

It is important for business owners to keep in mind that buyers expect that the business will continue to run successfully not just during the sales process but through closing as well.  For this reason, you’ll want to stay as focused on the day-to-day operations of your business as possible; after all, if a deal falls through the last thing you want is to have a dip in revenue.

3. Are There Other Decision Makers?

Determining whether or not there are any other decision makers is a very smart move.  Part-owners and silent partners will have to be addressed when it comes time to sell.

4. Just How Important is Confidentiality to You?

Confidentiality is important when it comes to selling your business.  The more active your selling process, the greater the chances are that you’ll have a leak if you’re not extremely careful.  Leaks unfortunately occur more than you might think.

How much will this issue negatively impact your business if it does occur?  You should have a “leak plan” ready to go. In your plan, you should have in place what steps you should take to minimize the damage caused by the leak.  Being ready to deal with key customers, employees and distributors is the cornerstone of dealing with any leak.  Business brokers are experts at helping clients maintain confidentiality.  This can save you a great deal of time and effort on many fronts.

By answering these four questions fully, you will save yourself time, stress and effort.  Selling a business is a complex process. But with the right planning you can minimize your effort and maximize your results.

Copyright: Business Brokerage Press, Inc.

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