Questions from sellers
What can intermediaries and business brokers do - and what can't they do?
Qualified intermediaries and business brokers are the professionals who will facilitate the successful sale of your business. It is important that you understand just what a professional intermediary can do — as well as what they can’t. They can help you decide how to price your business, find the right buyer, negotiate a fair offer for your business, negotiate the business details of the transaction, and structure the sale so it makes sense for everyone — you and the buyer. They will stand by you every step of the way until the transaction is successfully closed. They can also assist the buyer in all of the details associated with the business buying process.
An intermediary is not, however, a magician who can sell an overpriced business. 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. Many people misunderstand the complexities and time commitments required in a business sale or merger.
Calder Associates understands not only your general requirements, but goes the distance to ensure that your needs are met for the long term. We work to help guarantee that the legal, tax, financing, and financial planning aspects of the transaction work to the benefit of you, the business owner(s), as well as the buyer. Calder strives to make each transaction complete quickly, diligently and with limited expense.
What can I do to help sell my business?
A buyer will want up-to-date financial information. If you use accountants, you can work with them on making current information available. If you are using an attorney, make sure they are familiar with the business closing process and the laws of your particular state. You might also ask if their schedule will allow them to participate in the closing.
If you and the buyer want to close the sale quickly, you may not want t to wait until the attorney can prepare the documents or attend the closing. Calder Associates has successfully assisted sellers in expediting the closings of numerous transactions. Our ability to understand the legal and tax implications of a transaction provides us with the facility to complete the required tasks to close both quickly and efficiently. Where necessary, we will even educate sellers, buyers or bank counsel on the intricacies of the transaction. Understanding and explaining the possible legal or tax issues surrounding the transaction to your advisors provides you with the best legal, accounting and/o tax advice. Time is of the essence in any business sale transaction. The failure to close on schedule diminishes the likelihood of a successful close. Calder Associates understands these issues and knows how to navigate the complex waters required to successfully complete a transaction.
What happens when there is a buyer for my business?
When a buyer is sufficiently interested in your business, he or she will, or should, submit an offer in writing. This offer or proposal may have one or more contingencies, which may include a detailed review of your financial records, a review of your lease arrangements, franchise agreement (if there is one), patents and/or trademarks, as well as other pertinent details of the business. You may accept the terms of the offer or you may make a counter-proposal. You should understand, however, that if you do not accept the proposal, the buyer can withdraw the offer at any time.
At first review, you may not be pleased with a particular offer; however, it is important to look at it carefully. It may be lacking in some areas, but it might also have some pluses to consider. There is an old adage that says, “The first offer is generally the best one the seller will receive.” This does not mean that you should accept the first or any offer for that matter — just that all offers should be looked at carefully. We work with you to evaluate all the offers, and determine from an impassionate viewpoint, the benefits and risks to you.
When you and the buyer are in agreement, both of you should work towards satisfying and/or removing 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 or holding back information. The buyer may, at this point, bring in outside advisors to help review the information. When all the conditions have been met, final agreements 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.
Why is seller financing so important to the sale of my business?
Surveys have shown that a seller, who asks for all cash, receives on average only 50-70 percent of their asking price. On the other hand, sellers who will finance a portion of the deal, receive on average 86 percent of their asking price. That’s a difference of 16 to 36 percent! In many cases, businesses that are listed for all cash just don’t sell.
Many financial institutions want to know that the seller will share in the risk of financing the deal by holding a note. Holding back a portion of the selling price in the form of a note gives the financial institution the confidence that the seller believes the company will survive and grow under a new owner. Additionally, this hold back, further mitigates the institution’s decision to give the loan.
Although you may not have considered financing a portion of the deal, this one important factor will dramatically increase your chances of selling the business while decreasing the time period from listing to sale. Additionally, most sellers are unaware of how much interest they can receive by participating in the financing of the transaction. In some cases, interest payments associated with the note and the tax advantages received by deferring payments over time can increase the dollars received by the seller in the end. On the flip-side, having the seller hold a note tells the buyer that the seller has enough confidence in the business to pay them back over time.
How long does it take to sell my business?
It generally takes, on average, between five to eight months to sell most businesses after it has been prepared for the market. 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 operate under the premise that they can always come down in price, and therefore overprice their business. This theory often “backfires,” because buyers often refuse to look at overpriced businesses. It has also been shown that the amount of the down payment may be one of the key ingredients to a quick sale. A lower down payment typically shortens the selling cycle. A reasonable down payment also tells a potential buyer that the seller has confidence in the business’s ability to make the payments.