Here is a very timely IBBA article.  Sellers are now going to be forced to do more financing in SBA Guaranteed deals under the new SBA guidelines, and should consider the many benefits of financing as much of the deal as possible (after of course a substantial down payment).  Bank financing significantly raises the cost to the buyer and extends the time of sale.   Where sellers can afford to finance the deal they can often get more because of the savings to the buyer, and can avoid a variety of delays caused by bank processes.

Don’t Forget to Consider Seller Financing

As baby boomers begin to hit retirement age, many who are business owners are ready to sell. It’s created a market that has many businesses for sale.

At the same time, concerns about the economy had made it tough to get financing for many potential deals. Seller financing is one option that could be the solution to get many deals done.

Seller financing involves a seller helping to finance the sale of the business by taking back a second note on the business. It differs from a traditional Small Business Administration (SBA) loan because the seller essentially extends credit to the buyer against the purchase price of the business. However, seller financing is misunderstood by many, even though it may be the best way to sell a business during a stagnant economy.

The most common option for seller financing involves secured notes, but other options also exist, including: unsecured notes, assumption of the seller’s guaranteed credit, assumption of capital leases, a real estate lease, earnouts, notes on capital equipment and more.

There are a number of benefits for business owners who are considering seller financing:

·          Faster sale – Seller financing provide an attractive option for buyers which means that sellers can sell their business fast and at a higher price.

·          Flexibility – Seller financing enables the seller to create a payment schedule, interest rates and loan period that fit their personal needs.

·          Tax breaks – Taking a note for part of the business purchase price may provide a tax break for the seller. The seller can defer some of the tax due on the sale of the business until full payment is received, which could be several years down the road.

·          Protections – Asking the new owner to keep the seller up to date with information like monthly profit and loss statements, workforce numbers, order backlog, inventory levels or other items with the monthly payment can be in the sale contract. The additional information allows the seller to keep track of the business and step in to offer advice or help if any problems are detected.

Working with a qualified business transaction professional, like a Certified Business Broker (CBI) or Mergers & Acquisitions Master Intermediary (M&AMI) is also recommended. Certified brokers and intermediaries can provide the guidance you’re looking for when considering seller financing or other financing options. They will help potential buyers and sellers develop a deal that is fair to both parties in the acquisition process.

The International Business Brokers Association^® is the largest international, non-profit association operating exclusively for the benefit of people and firms engaged in the various aspects of a business brokerage and mergers and acquisitions. IBBA^® has 1,950 members worldwide, with corporate headquarters in Chicago, Illinois.

©2008 International Business Brokers Association^® (IBBA^®) all rights reserved Permission to reuse any or all of this material should be directed to the IBBA at 888-686- 4442 and is restricted to IBBA members.

 

 

The International Business Brokers Association provides us with a number of interesting commentaries, and this one should be read by business owners whether they are currently thinking of selling or are just thinking what their exit strategy should be.

 

Adding Value to Your Business

 

If you’re looking to sell a business, it’s critical to look at the value of the business.  But a typical business really has two values.  The “academic” value is the one determined by a professional business valuation.  The other is the “true market” value.  The academic value is arrived at with a formula based on the firms’ hard assets, cash flow, industry averages and multiples.  The fair market value also takes those items into consideration, but then considers what buyers are really willing to pay.

 

For many small and mid-sized businesses hard assets like equipment, vehicles, land, buildings, and inventory may be limited.  For some small businesses there may be no hard assets at all.  Instead, their value is based on intangibles like employees, business processes, customer lists, location and business relationships. 

 

To maximize the fair market value of your business, it’s vital that you capitalize on those intangible assets. 

  

• Develop key employees.  Buyers generally aren’t interested in paying a premium if the business relies on you for its success.  Remember to delegate responsibility to key employees and involve your key staff members in the decision making process.  Demonstrating that your company’s success is reliant on your capable, well-trained employees – not just you – will pay off at the time of sale. 

 

• Document what you do.  Be sure that job descriptions, operation processes, and strategic plans are documented.  Documented records and plans give a buyer greater comfort that he or she will be able to emulate your successful growth and will help your buyer obtain financing.  Also, be sure to keep business records like sales and expense reports, internal profit and loss statements/balance sheet, and tax returns clean and well-organized. 

 

• Build relationships.  Name recognition, customer awareness and your reputation are all part of your business value.  Even if your company doesn’t have many hard assets, your relationships are key.  Consider diversifying both supplier and customer accounts. 

 

• Improve cash flows.  A potential buyer wants to see the “true cash flow.”  And, of course, in the business world cash is king.  Be sure you are driving all income to the bottom line. 

 

• Review your assets.  Sell off or dispose of unproductive assets or unsalable inventory.  Remove or buy off any assets that are primarily for your personal use. 

 

• Find and build your niche.  You don’t have to be everything to everyone.  Buyers will pay a premium for a niche that has barriers to competitive entry. 

 

• Remodel, clean, and organize.  What’s the first thing anyone does when they put their home on the market?  They spruce things up and make sure everything is in its right place.  Yet, in business, that’s rarely considered.  A well-maintained facility will get the best price.  Even businesses that lease space can benefit from a thorough cleaning and organization to convey a feeling of quality and efficiency. 

 

Keep these important intangible assets in mind if you’re looking to sell your business.  They convey a value that financial statements alone do not.  If you are looking to sell, make a plan.  Start working on the intangibles well in advance of putting your business on the market.  For many business owners, they reach a point where they burn out and psychologically retire early, before a sale is made.  It’s important to work to keep your focus right until the sale is complete. 

 

Finally, when the time to put your business on the market arrives, consider lining up key specialists who will help you make the most of the sale – an attorney, an accountant, and a business intermediary to name a few.  Remember, you only have one chance to sell your business, so you want to do it right. 

 

 

 

We recently had a deal under agreement with a 5 month lead time to closing.  It did not happen because of a variety of issues. 

 

The IBBA had this recent article on the subject.

 

Many factors can bog down the sale of a business.  In fact, more than purchase price or structure, time is the most likely reason that a business sale may fail.

 

Time can breed frustration and fatigue. As a potential sale drags on, the owner is left in an uncomfortable state of flux.  The buyer may also become frustrated as fees mount.  The deal can reach the point when one party declares…“It just wasn’t meant to be.”   

 

National figures indicate that the average business sells in nine to 12 months from start to close. Once a letter of intent (LOI) has been signed, the final due diligence and closing process usually takes 30 to 90 days.

 

So how do you keep the sales process moving forward?

 

Attentive Intermediaries

Your business intermediary should be able to give you the time, attention, energy and resources necessary to focus on your deal.

 

Be sure to ask your business broker or intermediary about his or her organization’s work on closing details.  You want to be sure that you are working with someone who can cover minute details, looking weeks and months ahead in the sale process.

 

Obtaining appraisals, ordering environmental investigations, transferring licenses, title work and many other details need to be handled properly and in a timely fashion to be able to close a transaction.  For the best possible results, you want to work with someone who knows the proper sequence of events so there aren’t any unnecessary delays.  There’s a lot to coordinate and missing just one detail can cause a delay in closing the deal. 

 

Transition Specialists

From your business broker or intermediary to your attorney and accountant, you want to consider hiring specialists in business transitions.

 

Inexperienced advisors tend to be overly conservative to protect their liability. That can drag out the negotiation process and may cause frustration for the parties involved.  If you are serious about selling your business, you really don’t have the time or money to pay to educate your advisors on the mergers & acquisitions process. 

 

Comprehensive Overviews

Your advisor should spend the time packaging the business up front. A comprehensive business review can be developed that answers 80 to 90 percent of the standard questions a potential buyer will have.  

 

This helps both the buyer and the lender make decisions more quickly.  It will also save you time because your intermediary won’t be requesting pieces of information as new buyer questions arise.

 

Seller Preparation

Be prepared to move forward emotionally and financially.  A seller will sometimes thwart the sale because they haven’t seriously considered their future plans or their financial expectations are out of line.  A professional advisor should be honest in what he or she believes the market can bear and should not let you go to market with an unreasonable asking price.    

 

Buyer Screening

Finally, your intermediary should screen all buyers to ensure they are serious about the potential acquisition and have the financial means to move forward with a transaction. You don’t want to waste time with buyers who simply can’t afford a purchase.

 

Selling a business can certainly be an emotional ride.  It’s a time to work with deal makers and specialists who will help to minimize the stress and help everyone move forward toward the timely completion of the business sale. 

 

 

The International Business Brokers Association^® is the largest international, non-profit association operating exclusively for the benefit of people and firms engaged in the various aspects of a business brokerage and mergers and acquisitions.  IBBA^® has 1,950 members worldwide, with corporate headquarters in Chicago, Illinois. 

 

©2008 International Business Brokers Association^® (IBBA^®) all rights reserved

Permission to reuse any or all of this material should be directed to the IBBA at 888-686-4442 and is restricted to IBBA members. 

 

The IBBA has a service that provides us with interesting articles.  Here is one that is really appropriate for Sellers.

 

The typical business owner will only sell a business once.  Understanding the complex process involved will help produce the best results.  But don’t fall prey to the myths that can derail or seriously affect a potential sale. 

 

Myth #1 – I Can Sell It Myself

Many owners believe they’re qualified to sell their business without professional assistance.  Many owners are entrepreneurs and the key salesperson for the company.  But selling a business is not like selling a product or service.

 

If you’re looking to sell on your own, confidentiality is lost.  If word of a potential sale gets out, there are definite risks of losing clients, employees and favorable credit terms.

 

Do you really have the time to run your business and compile marketing materials, advertise, screen buyers, give tours and facilitate due diligence? 

 

When you’re looking to sell you want to put even greater emphasis on running your business, boosting your sales and not taking on new challenges.  

 

Myth #2 – I’ll Sell When I’m Ready

Certainly, an owner wants to be sure he or she is mentally and emotionally prepared to sell. But personal readiness is just one factor.  Economic factors can have a significant impact on the sale of a business. 

 

Sale prices can be affected by industry consolidation, interest rates, unemployment and many other economic measures.   Talk with a professional and aim to sell when your personal goals and market conditions align.

 

Myth #3 – I Know What it is Worth

Some owners will base the company value on what they need for retirement.  Others will tell you they want $100,000/year for “sweat equity.”  Still others utilize industry multiples. 

 

A third party valuation is a good idea for anyone seriously considering the sale of their business.  An outside valuation will include a thorough analysis of the business and the market it operates in. This will provide a solid understanding of the company’s growth potential, not some vague industry average.

 

Myth #4 – It’s Like Selling a House

Preparing to sell your house may take a few weeks, then you want to get the word out to everyone that the house is on the market.  Once you get a satisfactory offer, you sign on the dotted line, turn over the keys and move on. 

 

Selling a company is much more complex.  A successful business sale usually requires a great deal of pre-planning, at least a year and maybe as long as three years to drive sales, develop key staff, document the operations and control expenses.

 

The average house will sell in less than four months, while the average business sale is nine months to a year. 

 

Even after the business is sold, the seller can be expected to put in at least a few months, and possibly years of transition time, helping to make the new owner a success.

 

Sound sale strategies will bring you the optimum price the market will bear. Go to market with realistic expectations by getting a professional valuation and using a professional business broker or intermediary.

 

The International Business Brokers Association^® is the largest international, non-profit association operating exclusively for the benefit of people and firms engaged in the various aspects of a business brokerage and mergers and acquisitions.  IBBA^® has 1,950 members worldwide, with corporate headquarters in Chicago, Illinois. 

 

©2008 International Business Brokers Association^® (IBBA^®) all rights reserved

Permission to reuse any or all of this material should be directed to the IBBA at 888-686-4442 and is restricted to IBBA members.