Q&A - How long will it take to sell my business?

From time to time, I will blog commonly asked questions and answers to help those of you who are considering selling your business. 

Q: How long will it take to sell my business?
A: The time needed for sale depends on a great many factors including the price of your business, the type of business, and your willingness to finance the buyer. In general, it takes 120-240 days or longer to find a buyer for a business. The price and the terms you are offering are important factors. The more reasonably priced and the better the terms offered, the faster the sale.

Here’s some advice –

You want to be updating your financials monthly and sending them to your intermediary. Buyers like to have a current picture of the business. Plan on 60-90 days from the time you have an accepted asset purchase agreement or stock purchase agreement to close escrow. It can take 3-6 months to get to the accepted offer stage or even 8-9 months.

I have a deal I’m working on that has over 30 Non-Disclosures signed and had four offers but we do not have a signed agreement. It has taken 9 months to get to this point.

The seller has become realistic on the price and understands now that there will be a large earn-out-due to 50% of the business being with one account.

Many variables affect the time on the market. Price it right, be available, keep the numbers current and things will happen a lot quicker.

I will gladly discuss with you how your business fits into these general guidelines. Contact us now to schedule a free consultation. Thank you!

-Joan Young

Sunbelt Business Brokers, Greater Bay Area | (408) 436-1900 | www.sunbeltbayarea.net

Keeping the sale of your business CONFIDENTIAL

Tip of the Day

Keeping the sale of a business confidential is probably the number one concern for business owners. Employees may become worried about the security of their employment, and clients may become concerned about quality and service.  Here’s something to ease your concern…

Business Brokers specialize in confidentiality. Every business they sell is a confidential transaction. A broker acts on your behalf allowing you to remain anonymous. It’s important to maintain confidentiality.

So, When should I tell my employees about the sale, you may ask? 

Although it sounds cruel, our considerable experience has proven that it is best to tell your employees about the sale after the sale is complete. Of course, if there is an employee whose expertise will be needed after the sale, you should introduce the buyer to this employee shortly before closing.

We have found that once employees find out that the business is for sale, they often just assume that their position will be replaced with the new owner’s personnel. This is far from the truth, however. Current employees are a wealth of knowledge! After the transaction has occurred and the seller is no longer there, employees become a real asset to the business. It typically works best if employees are introduced to the new owner right after closing the sale. This enables the new owner to tell about his background and to take time to assure the employees of their value and that no one is going anywhere– all without distressing anyone.

If you’d like to discuss how the confidentiality of the sale of your business will be handled, contact me at the number below. Thank you very much.

-Joan Young

Sunbelt Business Brokers, Greater Bay Area | (408) 436-1900 | www.sunbeltbayarea.net

Planning to Sell? How to answer THE most important question

Many business owners believe the act of selling their business is similar to passing the baton in a 400 meter relay: once you’re finished running, you get to relax.  In reality, buyers will insist that you stay on for a transition period – anywhere from six months to five years – during which time you continue to work in your business to help the buyer capitalize on the investment they’re making.

THE Question

At some point in the process of selling your business, a prospective buyer will ask you – oftentimes casually – “Why do you want to sell your business?” These eight seemingly innocuous words have derailed more deals than any others.

Buyers ask THE question to evaluate how likely and willing you are to stay on or if you already have one foot out the door.

Obviously you don’t want to lie, but there is a right and wrong way to answer THE question. Answers like “I want to slow down a bit” or “I want to travel” or “we’ve got a baby on the way and I want to spend more time at home” communicate to a potential buyer that you plan on winding down when they take over. However, what they want to hear is your intention to help them realize the potential locked inside your business.

Here are some suggested responses based on your age.

If you’re under 40, you clearly aren’t ready to “retire” so you need to communicate that you see an upside in merging your business with theirs:

“In order for us to get to the next level, we need to find a partner with more <insert sales people, distribution, geographic reach, capital or whatever the partner brings to the table>.”

If you’re between 40-55 years old, most people will understand the need to shore up your personal balance sheet:

“I’ve reached a time in my life where I want to create some liquidity from the value I’ve created so far, and at the same time I want to find a partner who can help us get to the next level.”

If you’re over 55, you can start to talk about retirement, but you want to make sure you communicate that you still have lots of energy and passion for your business.

“I’m at a stage where I need to start thinking about retirement. It’s a long way off yet, but I want to be proactive.”

Rehearse your answer to THE question so it becomes a natural response when you are inevitably asked THE question by a potential acquirer. 

Contact us now to schedule a free consultation. I will gladly go over your personal situation with you.

Thank you! 

Sunbelt Business Brokers, Greater Bay Area |  (408) 436-1900 | www.sunbeltbayarea.net | info@sunbeltbayarea.net

Pros of Seller Financing: Getting More for Your Business

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, earn-outs, 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. 
• In First Position to Be Paid:  If SBA is not in the picture you are in 1^st position if there would be a default.  We encourage a personal guarantee from the buyer to ensure you being paid.

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.

Follow the link below to learn the ins and outs of selling your business, maximizing your profits and walking away from the table with a sale tailored to your needs.

CLICK HERE TO VIEW OUR WEIBARS!

Contact us now to schedule a free consultation. I will gladly go over Seller Financing and other inquiries you may have.

Thank you! 

Sunbelt Business Brokers, Greater Bay Area |  (408) 436-1900 | www.sunbeltbayarea.net | info@sunbeltbayarea.net

Have you thought of your Exit Strategy?

If you’re a business owner, you’ve most likely asked yourself this question, HOW DO I GET OUT OF THIS BUSINESS? The buzz phrase is “Exit Strategy” – and you have one—whether or not you have a plan in place. 

Your financial planner says you should have an exit strategy; your lawyer says you should have an exit strategy; your spouse says you should have an exit strategy. They may not say it in just that way. The financial planner says you need to diversity your assets; your lawyer says you need to spread your risks; and your spouse asks, “When are we going to spend more time together?”

In planning your exit strategy, you will have to look at many areas of the business and your personal life.

Estate planning Retirement plans Financial requirements Mergers / acquisitions / sale Heirs

I understand this can be overwhelming. Here is where I come into place. For a personal consultation regarding your Exit Strategy please call us at (408) 436-1900 or visit our web page where Exit Strategy Webinars are taped to educate potential sellers.

I look forward to hearing from you! 

Best of luck,
Joan Young

 Joan Young         jyoung@sunbeltbayarea.net  (408) 436-1900    www.sunbeltbayarea.net

2011 Business Brokerage Market Expanding

Based on my own observations from more than two decades in the field of business brokerage and mergers and acquisitions, many small businesses that survived the economic downtown are now seeing renewed strength in their top-line revenues, and solid or growing bottom-lines. In fact, the bottom-line cash flow for a number of businesses appears to be healthier than the top-line sales.

While this doesn't mean all companies are back to pre-recession performance levels, entrepreneurs are likely to see new options for their business next year, thanks to an expected increase in bank loans and a larger pool of potential buyers.

Here are my four predictions for this year that could affect the sale of your company.

No. 1: Large Pool of Potential Buyers
There is expected to be no shortage of business buyers in 2011. That's because there are a growing number of unemployed (or soon to be) middle- to senior-level executives who are likely to decide that buying a business is a feasible alternative to looking for a job.

While potentially more capital-intensive, these buyers realize that purchasing an existing business with revenues, clients, trained employees and cash flows could allow them the best possibility to sustain their lifestyle in the ab-sence of concrete employment options. However, these individuals would be wise to keep their options open (employment search, start a business, or buy an existing business) in case the right deal doesn't materialize.

No. 2: Bank Lending on the Rise
Based on current and anticipated behavior, banks are expected to come back to the lending market for small-business acquisitions. From a business broker perspective, it's been quite some time since bankers called to source deals. The good news is that they have started calling again.

While many of these deals are smaller in size, this still bodes well for 2011. Businesses with adequate cash flow will ultimately see more overall activity in terms of bank lending this year.

No. 3: Increase in Business Valuations
Valuations are likely to increase for businesses with solid fundamentals. This may sound counter-intuitive, given current market conditions, but it's basic supply and demand. There are an inordinate number of prospective (and qualified) buyers in the marketplace chasing a small number of healthy businesses. It's not uncommon for good companies to attract a large number of buyers, which results in an auction-type atmosphere where buyers bid up prices and terms.

This dynamic will not face a major change this year. Business owners who are emotionally and financially ready to sell will be the benefactors of this lopsided market.

No. 4: Baby Boomers Will Start Selling
Back in 2007, one in every two baby boomers -- who control almost 8 million small businesses in the U.S., according to BIGresearch -- was expected to begin selling their businesses. This trend was on track until the recession hit. However, these boomers will retire soon and could revisit a sale.

When that happens, there will be a sharp increase of businesses on the market. The supply and demand dynamics will shift heavily in favor of buyers. At that point, sellers will need to be exceptional in order to secure a good price for their business.

Regardless of how 2011 plays out, one prediction will certainly hold true -- businesses that take the proper steps to prepare for a potential sale will have a much better chance of achieving a successful exit than those who don't.

How to find the best buyer for your business.

It takes more than setting the right price to acquire the ideal match for buying your business.

You want a big payoff by selling your business. But you don’t want just any buyer for the business, you want the most qualified buyer. Easily, you could end up getting multiple offers from buyers that aren’t offering the most money. Matching the right buyer with the right business is a painstaking process and the transfer of business ownership is time consuming. However, the more prepared you are the more successful the outcome is likely to be.

Before seeking a buyer there are some important questions that sellers should ask themselves. First off, can your business be sold? Several elements of a business make it an attractive buy. It has a solid history of profitability, for instance; a competitive advantage; a large and loyal customer base or long-term contracts with clients; and, growth opportunities. Other considerations are brand loyalty, intellectual property rights, licenses, or issued patents.

For both seller and buyer the bottom line is what’s your business worth? This is evident in the valuation. You of course want maximum value for your business but setting an asking price too high could raise a red flag, scaring away potential buyers. But if you price it too low, you’ll lose out.

According to the International Business Brokers Association, a company’s value is determined by a compilation of factors such as sales, earnings, performance, market outlook, personnel, net book value, and the fair market replacement value of equivalent operating assets. Value is also influenced by intangible assets such as a company’s brand image, industry reputation, and good will.


To get a fair and reasonable price for your business, you need good negotiating power working on your behalf. Consider hiring an intermediary, which depending on the size of the deal could be a broker (usually $10 million or less), mergers and acquisitions professional (more than $15 million), or an investment banker (a large or public company). The intermediary’s job is to determine the appropriate value for your business and to find the perfect buyer to purchase it at the asking price.

Finding the right buyer is the key to a smooth transaction; it also will contribute to the continued success and growth of the business. Even if you work with an intermediary, it still behooves you to understand the process. Here are a few guidelines to help you navigate through the murky waters.

1. Who Are Your Potential Buyers?

Anyone could be a prospect. A buyer can come from your employees, customers, suppliers or competitors. People buy businesses for different reasons, and this will affect how you pitch your business to them. But generally buyers are divided into two groups: strategic and financial buyers. Strategic buyers will look at how well your business fits into their own company’s long range plans. Financial buyers are more interested in your company’s profitability and stability. They could be companies or individuals with money to invest. Some will want a solid, well-managed company that requires little oversight while others may specialize in turnaround situations and will look to buy a business that they can tweak to turn a profit.

2. Where Can You Reach Potential Buyers?

If your business is well known then word that it’s for sale may be enough. But more than likely you will need to cast a wider net. You could put out feelers to people you know or use such outlets as trade publications or newspaper advertising. There are websites such as BizBuySell.com and BizQuest.com. But a broker, M&A advisor or investment banker has access to deal flow and can sift out and approach potential buyers confidentially. You don’t want to risk loosing valuable clients, vendors or employees because of negative connotations that might come from putting your business on the block for sale.

3. Why Should You Qualify Potential Buyers?

Documents like confidentially agreements and financial background information are standard documents for prospective buyers. A broker or investment banker can pre-screen buyers to make sure they are financially qualified to purchase the business. This includes reviewing ownership, available funds to invest, sources of financing, and any judgments or bankruptcies filed. You also want someone who has the business knowledge, management experience and complementary skills to take the company to the next level.

Find out the primary reason for that individual’s or company’s interest in buying your business. If the buyer is another company, make sure there will be a synergistic fit. If it is a private equity group, look at their past experience in acquisitions

4. How to Look Good for Potential Buyers?

Selling a house is not the same as selling a business. But just as sellers stage a home to make it more appealing you need to get your business in good shape before you approach potential buyers. Your books should be in order for inquiring eyes to review. Have in hand before you go to market both current and three years’ of profit and loss statements, balance sheets, and full tax returns. In addition to listing assets and financial information, include projections for future earnings. Create a selling memorandum which starts with an executive summary that tells potential buyers the key elements of your business; provides a list of your products or services and an overview of the industry; and, explains why you are selling the business, which should have a positive spin on it. In addition, you want to get the physical business cleaned up and ready to show. It’s not just about the numbers; first impressions count. Make sure the business had good curb appeal. This includes disposing of unproductive assets or unsalable items (e.g., a broke down truck sitting in the warehouse).

5. What to Expect Out of The Deal?

There are some basic decisions you must make like will you offer seller financing; will you sell the entire business entity or just assets; will you keep any assets; will the buyer likely retain or replace staff; will you maintain a minority stake of the ownership; will you be expected to put in a year of transition time after the business is sold. Don’t make the mistake of waiting until after the deal is done to remove assets that are your personal property. Unless specified, “When a buyer walks in the facility, he wants to own everything he sees.

6. When Are You Ready to Close The Deal?

The average house will sell in four months. It may take nine months to a year to sell your business.
Once a buyer presents an offer of purchase, you may accept the offer, counter, or reject it entirely. The agreement becomes a binding purchase offer and sale once all parties agree to the terms and conditions; the buyer does due diligence inspecting all aspects of the business operation; and all contingencies are removed. Sound sales strategies will bring you the optimum price for your business, says Bruce.

How Do I Get an Accurate Business Valuation?

If you're planning to sell your business, an accurate valuation will ensure that all the hard work you've put into it will be taken into account and included in the price. Business valuations are also important when seeking investment capital, taking on a partner, or selling shares.

While many business owners have an idea of what their business is worth, that idea can quickly wither in the face of challenges from the IRS or other sources. Therefore, getting an accurate business valuation is crucial.

There is more than one type of valuation. For example, there's no point in evaluating a services business based on the value of its physical assets. Other methods to consider include intangibles such as goodwill, which can be difficult to assess. And value may also vary with context and subjectivity — a business may be worth different amounts to different people, depending on their preferences and needs.

This means that if you want a meaningful valuation, you will need to discuss your business circumstances with a business valuation expert. You may find that the valuer needs to use a number of different methods and then come up with a final amount that gives weight to each figure that emerged from each method. Good interpretation and judgment will be needed to come up with a final figure that accurately reflects the value of your business.

Value factors

A number of different factors need to be taken into account to ensure that a valuation is accurate and useful. Some of these factors include:

• The nature and history of the business
• General economic outlook, including industries that affect your business
• Your business's book value, financial condition, and earning capacity
• Your business's dividend history and paying capacity
• Investor risk inherent to your industry
• The maturity of the business and its industry
• The value of the business in the absence of the current owner
• Stock sales
• Stock of comparable public corporations

A valuation expert will also review and analyze recent financial history, financial projections, buy-sell agreements, executive compensation, organizational charts, quality of employees, management depth, major customers and competitors, and the viability of the business without the current ownership.

Methods of Valuation

The crudest valuation method is known as the "multiples" method, which operates by rules of thumb. For example, legal firms are commonly valued at 40 to 100 percent of their annual fees, while landscape businesses are estimated at 1.5 times their discretionary earnings, plus the value of their capital assets. However, multiples only give a rough, industry-wide ballpark figure for business value, not an exact value.

More accurate methods include the "balance sheet" approach, which basically subtracts business liabilities from assets. The "adjusted book value" method is similar, but uses current market value rather than purchase price or depreciated value.

Retail and manufacturing businesses are often assessed according to asset value, assuming those assets are significant. Service companies are often valued using the "capitalization of income" method, which places a heavy emphasis on intangible assets. It's also possible to calculate the value of a private company by making a comparison with an equivalent public company and making appropriate adjustments. Business value can also be estimated by anticipating cash flow over a three- to five-year period, and adjusting that into current dollar amounts.

Don't Let the Buyer Run the Show!

I just closed a transaction a month ago in which we thought we had a great match. The buyer was quite confident, aggressive, and not demanding at all of the seller.

The parties agreed to four weeks of training. After two weeks, the buyer told the seller, "All is well. We can handle it from here." In effect, they were saying "Don't call us; we'll call you."

Meanwhile the seller is home receiving phone calls from the employees saying, "She thinks she knows everything. She isn't warm and open like you. I think I'm going to get my resume out there."

The moral of the story: Stick around and help make a smooth transition. Key employees need to feel valued, safe, and respected. Educate your buyer ahead of time about the personality of each key player so they can begin building rapport gradually. Most sellers will be carrying a note, so they definitely have a vested interest in the success of the new owner.

Private Equity Groups - Good Liquidity for Family-Owned Businesses!

If you have a family-owned business with several family members working actively in the company, you need to explore how to keep peace in the family when it's time to exit. You may not feel that any other of the family members are capable of taking over and continuing the legacy.

Private Equity Groups, officially called PEGs, can be a great solution. There are over 2,700 PEGs in the U.S., up from just a couple hundred 20 years ago. These groups are constantly looking for good opportunities.

PEGs offer flexibility. They may purchase the entire company but also structure deals where they invest increments over time slowly acquiring ownership while family members get some money each year. They often will purchase your company as an "add-on" to enhance or complement one of their other companies.

Private Equity Groups do this for a living and have dealt with dozens of companies so you can learn a great deal through out the process. They can be short-term or long-term partners.

You may stay on and run the company for a year or more, or they may bring in their own management. All things are open for discussion with the right Private Equity Group.