sell a business · 2019. 9. 24. · deciding when to sell / timing the sale 8 selling a business,...

Sell a business:a step-by-step guide

Copyright © 2014 Dynamis LtdAll rights reserved

Words: Adam BannisterEditor: Rufus BazleyCopyeditor: Matt SkinnerLayout Design: David McDonaldGraphics: Karou Sato

www.BusinessesForSale.com

Dynamis House, Sycamore Street, London, EC1Y 0SW

4 3

Selling a business, step-by-step

Table of Contents

Contributors 4

Introduction 5

Chapter 1 Deciding when to sell / timing the sale 7

Chapter 3How to find the right business broker 16

Chapter 4Preparing your business for sale 18

Chapter 5How to value your business 23

Chapter 2The benefits of using a business broker 12

Chapter 6Overvaluation: avoiding the most common mistake 25

Chapter 7Finding buyers 30

Chapter 8Marketing your Business with a BLI and Profile 35

Chapter 9Confidentiality 37

Chapter 10Avoiding disruption when selling your business

Chapter 11Why deals break down – and how to close the deal

Chapter 12Finance and deal structure

Chapter 13Earn-outs

Chapter 14Seller finance

Chapter 15Advising the buyer after selling your business

Chapter 16Case studies: What are you up to now?

Conclusion

Resources

Index

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Selling a business, step-by-step 4

Contributors


Jim Hoffman

Jim is the author of the IT Due Diligence Guide. He has over 20 years of experience and throughout his career, he has been called upon to lead many due diligence efforts, including mergers and acquisitions on both the buy and sell side.

itduediligenceguide.com

Roger Murphy

Roger has over 30 years industry experience and is president and CEO of Murphy Business & Financial Corporation. Murphy are one of the largest and most successful business brokerage firms in North America, with offices located throughout the United States and Canada.

murphybusiness.com

linkedin.com/pub/roger-murphy/8/aa8/786

(727) 725-7090

Andrew Rogerson

Andrew is a 5-time business owner and Certified Business Broker. He’s been running his own brokerage firm in California since 1999 and is also the published author of four books on business ownership.

rogersonbusinessservices.com

linkedin.com/in/andrewrogerson

@andrewrog

(916) 570-2674

Perry Sheraw

Perry is the Owner / Managing Partner of Sugarmill Media LLC a company whose talents, principles and a sincere desire is to help business owners achieve greater success through advanced marketing techniques. She’s enjoyed an interesting career from working as a print journalist to an investment banker.

sugarmillmedia.com

linkedin.com/in/perrysheraw

@PerrySheraw

Andrew Cagnetta

Andrew joined Transworld Business Advisors in 1994 and later purchased it. Since then he has helped thousands of entrepreneurs buy, sell and franchise businesses. Transworld are largely based in the US but they also have franchises in the Far East.

tworld.com

linkedin.com/in/acagnetta

@acags

(800) 205-7605

Richard Parker

Richard Parker is the author of the How To Buy A Good Business At A Great Price© series. He has personally purchased eleven businesses and works as a consultant/advisor to business buyers and sellers in more than 80 countries.

richardparker.com

linkedin.com/in/richparker1

@RichardDiomo

(800) 541-9195

Glen Cooper

Glen Cooper is a 35-year, multi-credentialed veteran business broker and business coach. Glen was owner and president of Maine Business Brokers which he ran with his wife from 1981 to 2010.

glencoopercolorado.com

linkedin.com/in/glencooper

(303) 919-2694.

Tony Calvacca

Tony Calvacca is a Certified Business Intermediary and Managing Partner of New York Business Brokerage, Inc. Tony has more than 25 years’ experience in sales, marketing and works directly with business buyers and sellers providing them with a consistently high level of representation.

nybbinc.com

linkedin.com/in/tonycalvacca

@nybizbrokerage

(631) 390-9650

Katrina Loftin-Winkel

Katrina operates BTI Group’s Sacramento and Nevada offices and has been involved in mergers and acquisitions since 1992. Over the years, she has handled numerous transactions including privately held automotive businesses, manufacturing, and distribution, franchises, restaurants, service, and hospitality companies.

btigroupma.com

linkedin.com/pub/katrina-loftin-winkel/9/1b0/645

(415) 227-1122

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Introduction


Selling your business is one of the most important things you’ll ever do.

How effectively you conduct the sales process will influence the price you achieve – and ultimately whether you earn just reward for the years of dedication and financial investment.

Get it right and you can retire comfortably or fund your next venture.

Get it wrong and you may not sell at all, let alone achieve your asking price. After all, around four in five businesses for sale are eventually withdrawn from the market without finding a buyer.

Priced and marketed correctly, however, any business should find a buyer.

This guide, which covers every aspect of the sales process, will help you avoid the pitfalls that prevent businesses from selling: pricing the business to high, failing to prepare the business adequately and neglecting your marketing approach, to name three.

From deciding when to sell through business valuation all the way to signing and exchanging documents – it’s an end-to-end, step-by-step account.

This comprehensive, easy-to-read guide, features:

Expert comment, insight and advice from 10 of the industry’s leading brokers and intermediaries �Statistics from BusinessesForSale.com’s marketplace surveys, which polled thousands of buyers, �sellers and business brokersCase studies from entrepreneurs who successfully sold their business �



61%of sellers started their venture from scratch...

35%acquired it as a going concern.

the 4%of businesses for sale that the outgoing owner inherited will – if of course they can find a buyer – be trading under a different family name. The family business passed down the generations is a dying breed.

18%of businesses for sale in

the second quarter of 2012 had been on the market for more than

two years.

44%of people considering buying a business have never bought a

business before.

15%of businesses that have been on the market for more than two yearshave not received a single inquiry inthat time.

47%of business sellers have never sold a business before.

Deciding when to sell / timing the sale 7


1Deciding when to sell / timing the sale



People sell businesses for a wide range of reasons

These reasons fall into one of two categories: personal circumstances and motivations or business reasons – i.e., issues related to the business itself, its market or indicators in the wider economy.

Personal reasons and motivations typically include the following (with percentages of sellers for whom this was a significant factor in their decision to sell):

� Retirement (34%)Seeking a new challenge (24%) �

� Relocating to a different area/country (22%)Haven’t enough time to dedicate to the �business (12%)

� Illness (10%)Always planned to sell after this many years �(12%)

� Divorce (2%)

Typical business/economic reasons:

Always planned to sell once the business had �reached this stage of development (9%)Challenging trading conditions (3%) �Increasingly difficult to thrive in this sector (3%) �Disagreements with business partner (3%) �Bought the business but now regret it (2%) �Value of business is at its peak (2%) �

Note how personal reasons are cited as motivations much more frequently than non-personal factors.

“Timing the market is so hard to do, especially with a privately-held company, because the business owner tends to make the decision to sell up when they get to a certain emotional point – when they’ve reached a financial goal, when they’re tired of running their business, sick of dealing with employees or dealing with the government. It becomes an emotional decision rather than a matter-of-fact decision, so it really varies with each party.”

Andrew Rogerson, owner and MD of Rogerson Business Services in Sacramento, CA

However, it’s still worth considering – unless your personal reasons, such as serious illness, warrant an urgent sale – the condition of your business and the economic cycle.

Being human, buyers are predisposed to overconfidence during an upswing and excessive caution during a downturn. So people will often overpay – and find it easier to get credit – when the economy is booming and be parsimonious during a recession.

A caveat worth mentioning, however: in 2012 significant majority of brokers said successful businesses were attracting more inquiries than before the credit crunch. Fewer in number, healthy businesses become even more attractive.

If you’re lucky, personal factors will converge with economic indicators. Let’s say you reach your target retirement age, for instance, and the business also happens to hit new heights of profitability.

You needn’t rely on luck, though. If you know you want to exit the business 5-10 years from now, then you can formulate plans aimed at achieving certain milestones by your exit date.

Case studyWhy did you sell your business?

Ravi Vanjani sold The Front Porch Grill, a fast-food restaurant in College Station, Texas:

“I moved to Dallas for another job and couldn’t find the right person to run the restaurant, which was doing well. So circumstances forced me to sell. When I started the business I knew I didn’t want to stay in College Station for a long time. I set a target of leaving after a couple of years. When I couldn’t find the right person to run it for me I had to sell a lot earlier than planned.”

Sheryl Best has yet to find a buyer for Las-Vegas based coupons website Coupons 4 Humanity LLC:

“Unfortunately, due to health issues we are unable to continue the work necessary to operate on a daily basis.”

Andy Meng sold Infront Webworks, a web design, development and marketing company in Colorado Springs:



“My wife and I were very involved in running the business, which we founded in 1994. We have grown kids who are getting ready to leave the house, so it was a very good time to sell the business from a lifestyle perspective – to slow down, to start doing the things we couldn’t do all the years that we ran the business.”

Shreeraj Parikh sold a convenience store/cigar shop in Orange, California:

“We wanted to venture out into something more manageable than an owner-operated business. In the convenience store industry there are a lot of cash transactions so we wanted something franchise-based that we could expand.”

Steve Price sold Kamehameha Environmental, a renewable energy company in Hawaii:

“I had an offer that we could not refuse – so the buyer found me.”

Katrina Loftin-Winkel sold Sand N Sage Lodge, a motel in Hawthorne, Nevada:

“I had a partner who was terminally ill who wanted to sell.”

Rising v falling market

Now, leaving when the cash registers are ringing isn’t easy – akin, perhaps, to leaving a New Year’s Eve Party as the clock strikes midnight. You could be forgoing years of rising profits, but that’s a judgment call you must make about the business’s potential and your appetite to realize it.

As with shares, you want to sell at the top, not the bottom, of the market. But of course, you can only truly identify a business’s peak in hindsight.

Sometimes selling ‘on the way down’ is unavoidable, however. If cash flow worries and long hours are damaging your health, for example, or if the reasons behind the decline are structural – say, if demand for your products is falling irrevocably (like DVD retail, for example).

“Some businesses are sold in the wrong phase of the economic cycle. If the business is in decline then that’s a big challenge for the buyer, who wants to see the business improving. So if you want to sell your business, try and sell it on the up rather than on the down.”

Andrew Rogerson, owner and MD of Rogerson Business Services in Sacramento, CA

Alternatively, it may be judicious to wait for an economic recovery rather than sell at the bottom of the market. Or you may have strong grounds to believe a large contract is within your grasp, one that will send revenues soaring.

Also consider trends in your sector, potential opportunities and threats on the horizon. Take US manufacturing, popular among buyers at the time of writing thanks to the cheap energy unleashed by the shale gas bonanza. However, that cost advantage might be eroded if Congress gives free rein to shale gas exports.

Whether you delay your exit for economic reasons is your call. You may ask yourself: What am I losing by delaying my exit? And: If I sell now, am I likely to raise enough money to finance my plans? For this reason you may wish to get an independent valuation.

Craving a new challenge

When you’ve been doing something for a long time mental fatigue and boredom can take their toll – on you and the business – and the injection of fresh ideas from a new owner is often the required impetus to take the business up a level.

But acknowledging you’ve had enough is only one half of the equation.

“Really understand your own motivation and where you’re going to be. Are you truly ready to sell? And where are going to go and are you going to be happy? Because sometimes people don’t realize that it’s a major part of their life and don’t think about what they’re going to do when they’re finished.”

Roger Murphy, president/CEO of Murphy Business & Financial Corporation in Clearwater, FL



Medical problems

Sometimes health problems force you to sell, sometimes quickly, which can leave you vulnerable to accepting a paltry bid. An alternative, if practical, is to delegate executive control to a manager while you recover.

Divorce

A divorce decree sometimes orders spouses to liquidate equity interests to share the proceeds, unless other arrangements can be agreed. A husband and wife operation can be difficult to restructure when couples become estranged, often resulting in the sale of the business.

Unsolicited offers

What if you have no intention of selling, but receive an unsolicited offer? It does happen.

There is no such thing as ‘not for sale at any price’ (unless the person saying it is so rich as to make money meaningless). Were someone to bid significantly above reasonable market value – and it may be wise to get an independent valuation – then you may contemplate the previously unthinkable.

How much do you need?

“Don’t make it about what your business is worth or who might give you the most value – make it about you. Let’s say that you’re younger and you have to spend money on your children – well you’re going to need a higher price. But if you’re older and you’ve put a lot of money away, then you might just want enough money to buy a vacation home or leave an inheritance.

“That’s how you want to start the process. It might not be the time to sell. You might have to go back, put certain things in place and make the business more valuable.

“You come to a broker and say: ‘Here is the number I want to meet my goals. Can you get that number for my company?’ And if they say yes, then you go forward, and if they say ‘absolutely not’ then, like I said, it probably isn’t a great time to sell your company.”

Ken Ducey, MD and business broker of Princeton Capital LCC in Ridgefield, CT



To what extent would a business for sale be more attractive if seller seemed desperate to sell and very willing to drop the price? (To buyers)

Much more attractive 39%Slightly more attractive 29%Would make no difference 17%Less attractive 15%

Much more attractive 39%Slightly more attractive 29%Would make no difference 17%Less attractive 15%

“It would

depend on why they were desperate to

sell”

“If the seller reduce the price and selling for

reasons such as sickness or family issues then it is

attractive”“If the seller

is desperate it is an indication of a struggling

business that may be losing money. I do have special interest in this type of situation. May be even

be willing to leave the ownership intact if they do not wish to sell,

in exchange would like some portion of negotiated ownership, provided the owner is someone

who I think is OK”

“A drop in price would help but only in case business is

backed by strong asset base and I have strong

feeling of making business viable and

profitable”

“Desperation in itself is a turnoff

but I am happy to negotiate a lower price so desire to

sell is a good thing”

“Desperation is never a good sign”

“If he’s desperate

to sell, then he’s not doing

that well”

The benefits of using a business broker 12


2The benefits of using a business broker

“Selling a business is not always a quick and straightforward process. Each business has its own unique characteristics and is part of the dynamic global, regional and local economy as well as a specific industry. If you want to sell a business privately then using a broker is really important. It helps put a professional between you and the other party, and most buyers and sellers haven’t done it many times. There are some rules to follow and having a professional in the middle can really smooth the waters. The professional knows what to disclose and in what order, and can be a sounding board for both parties.”

Andrew Rogerson, owner and MD of Rogerson Business Services in Sacramento, California

What, in your opinion, is the biggest advantage to using a broker to sell a business? (Brokers)

0

5

10

15

20

25

30

35

Realistic/accurate business valuation 28%Help with finding buyers 34%Help with preparing the business for sale 19%Other 24%

A properly qualified business broker can help you sell your business more quickly, and for a higher price, than you would otherwise have achieved.

They can provide an independent, objective business valuation and help you find buyers, negotiate with buyers and complete relevant legal documentation.

Mediating between buyer and seller they are, in a sense, the estate agents off the business sales world. Except that valuing and marketing a business for sale is rather more complicated; more than mere bricks and mortar, there is goodwill, staff, revenues and stock to take account of.

Yet while most people use estate agents to sell their house a significant proportion of business owners sell – or at least try to sell – their business without the help of a professional intermediary.



Now, appointing a broker does cost money and many ‘private’ sellers are satisfied with the price they achieve and how long it takes to make a sale.

However, providing you choose wisely – and there will be more on how to do that in the next section – hiring a broker can result in a quicker sale at a higher price and more than offset the cost involved.

Roger Murphy, president and CEO of Murphy Business & Financial Corporation, Clearwater, Florida, invites you to consider the following advantages to employing a broker when deciding whether the commission or success fee is worth it. Insights from other brokers are also included.

Maintains confidentiality

When you deal directly with potential buyers, they immediately know who you are and will probably be identify your company’s name easily. A business broker will only disclose basic information about the business and will not release confidential information without having the buyer first sign a confidentiality agreement and provide his financial qualifications. Only after the broker has determined he or she is a qualified buyer, as opposed to a tire kicker, will the broker share more detailed information. Since the prospect is dealing with a third party, the buyer does not know who the seller is.

Valuation expertise

“I can literally put 10 experienced buyers in a room and present them with the same business and they’ll typically come up with a very wide range of values. You have to remember that when it’s a 10% difference – and let’s say business is going for $2m-$5m – and it’s a closely held company, you’re talking about a huge range in terms of what the person or entity will receive. Ten to 20% of $5m – that could be up to $1m. That’s a very big difference, so that’s why you do want to get an intermediary. And we believe we are good at finding a buyer who is going to value it 20% higher.”

Ken Ducey, MD and business broker at Princeton Capital LCC in Ridgefield, CT

Business brokers have tools, such as knowledge of valuation models, at their disposal to help price a business. In addition, an experienced broker has current market knowledge of what types of businesses are in demand and what inventory exists. Some larger business brokerage firms

have certified business valuation experts on staff with access to databases containing the details of thousands of completed business sales. This information is invaluable for determining the best price for your business. And whereas you are emotionally attached to your business and liable to its worth, the business broker can assess its value objectively.

Access to qualified buyers

A good business brokerage firm will identify the right buyers and know how to find them. Brokers generally deal with 30 to 40 prospects or inquiries to find one qualified buyer worthy of being shown the business. Solid, qualified buyers are generally aware of which brokerage firms represent good, solid companies for sale and will frequently inquire about availability. A good broker will maintain a database of those buyers and match them with the appropriate business when it comes on the market. The broker will likely also have an extensive marketing program targeting buyers through websites, print advertising, direct mail campaigns, trade publications and a network of other brokers. A broker with access to a business listing system will have the advantage of other brokers actively helping him find the best prospective buyer.

Packages business documentation

A good broker is experienced in preparing the materials necessary to satisfy a buyer and, if involved, a lender. This information will be prepared in several formats and shared in stages, depending on where the parties are in the process.

Coordinates key participants

Business brokers are generally experienced in dealing with attorneys, CPAs, lenders, appraisers and tax experts. Their role in a transaction should be to quarterback and act as the point person in dealing with all parties. The broker should also be able to recommend several professionals, experienced in the business transfer process, should additional expertise be required.

Free the seller to concentrate on running the busines

If you don’t already have a buyer lined up, you will need to spend a lot of time on the sales process. Often taking hundreds of hours of dedicated time, it could distract you from what you do best: running your business.



How many businesses have you sold before? (To sellers)

“The main reason I used a broker was that I did not want to be distracted from my business. The majority of businesses listed for sale never sell and I did not want to lose focus from running my business, especially if I didn’t find a buyer.”

Richard Parker, who has used brokers for six of the 10 businesses he’s sold (the others resulting from unsolicited offers)

Maintains deal momentum

It has been said by many people experienced in the sales process that “time kills deals”. When deadlines are missed or time is spent waiting for documents, the parties involved often lose interest. Sometimes problems arise that seem insurmountable to an inexperienced buyer or seller and the parties give up and walk away from the deal. A good business broker will keep the parties on track and address problems that occur in a timely manner. Brokers keep the deal moving and ensure the parties stay motivated until the day the deal is closed.

Communication and building trust

“A broker can make the deal flow better, ease communication and be invaluable when you take a firm stand on an issue by letting someone else deliver the bad news.”

Richard Parker, now president of the Diomo Corporation, Fort Lauderdale, FL

Negotiates the broad strokes

Selling a business can be very emotional. Buyers sometimes second-guess themselves or nitpick at the details of a business as a way of avoiding making a final decision to buy. As an independent third party, the broker has the responsibility of keeping emotions in check during the negotiation process. In most cases, the broker will deal with each party separately to eliminate direct negotiation between them. An experienced professional understands the nuances of getting a deal done, whereas an inexperienced seller may be undergoing the process for the first time.

I’ve never sold a business before 47%1 22%2 15%3 6%4 or more 11%

I’ve never sold a business before 47%1 22%2 15%3 6%4 or more 11%



Stays involved until the deal is closed

The closing process can be a challenging time for all parties involved. An experienced broker will work with the closing attorney or the escrow company, as well as the lender and any other parties involved, to keep the deal on track.

They have witnessed a seller’s remorse and a buyer’s nervousness as the journey’s end approaches – the culmination of potentially the largest transaction either party has ever undertaken.

The business broker should also coach the parties on post-closing activities, such as notifying employees, vendors and customers.

If you’re still in doubt about whether you are willing to pay the costs of a broker, these questions will help you reach a conclusion:

Selling a business takes a lot of � time and effort. Can I devote the time and still continue to run my business properly, or would I be better off having a dedicated project manager to sell my company?Am I comfortable determining � what my business is worth and how to structure the asking price and terms in order that it will be attractive to a buyer?Will I have the � time to respond to potential buyers’ requests for additional information?Do I know � who the buyers are and where to find them?Will I be able to handle � several buyers at a time and keep track of everything?Will I be able to maintain � confidentiality when dealing with buyers directly or am I going to limit who knows that my business is for sale?

Also think about:

Can I handle the process of � negotiating with a buyer?Will I be comfortable dealing with an � attorney or accountant throughout the process?Can I afford to pay a � business broker a fee for selling my company?Is my business � attractive enough in size and desirability for a good business broker to accept me as a client?

“It’s even more difficult in a tough economy, if finances are tight or if key players have health issues. There is value in hiring a professional you trust to help guide you and keep all the moving parts well-managed.”

Andrew Rogerson, Owner and MD of Rogerson Business Services in Sacramento, CA

How to find the right business broker 16


3How to find the right business broker

Choose the wrong broker and your business may sit on their books for months or years, unseen by buyers or deterring parties with too high an asking price. Even worse, you may end up selling for less than the optimum price – a tragedy after the years spent building the business from nothing.

We’ve commissioned some of the most accomplished intermediaries in the business to help you find the best possible business broker and how to spot a charlatan or incompetent.

Qualities to look for

Choose brokers who possess the following if possible.

Appropriate qualifications

“Because of the complexities of selling a business, ensure you have a qualified professional in the chosen field on your team, one who you trust and have complete confidence in. Apart from trust, other important components to look for include professional qualifications from the International Business Brokers Association (IBBA) such as those with a CBI (Certified Business Intermediary).”

Andrew Rogerson, Owner and MD of Rogerson Business Services in Sacramento, CA

More than nine in 10 business brokers possess a real estate license, according to a survey by Tom West of Business Brokerage Press in Concord, Massachusetts. The few that don’t “are usually new to the business or out-of-state con artists,” Glen Cooper, president of Maine Business Broker’s Network in Portland, Maine, told Inc.com.

Relevant experience

An accomplished broker isn’t necessarily the right broker. Ideally (but not essentially) your representative will have experience of valuing and selling businesses in the following areas:

The same or similar sectors �In your price range – ie, similar sized �In your geographic market, so they �understand the local market

Strong track record

It’s worth asking brokers for examples of previous, successful deals and contact details of former clients. You might ask previous clients about the broker’s strengths and weaknesses and overall service quality.

“You don’t need a broker who will simply throw up a listing online and wait for buyers to contact them. As such, you must determine the precise plan a broker will use to advertise the business, solicit buyers, and get you visibility. Ask for a copy of sample profiles they have done for other clients. If a broker does not prepare a reasonably detailed overview on the business outlining the positives and negatives, it typically means they are too lazy to work for you.”

Richard Parker, founder of Diomo Corporation in Fort Lauderdale, FL

“Pick a company with a good advertising budget. One thing that sets us apart is our in-house advertising department, which makes sure the listings go online.”

Andrew Cagnetta, CEO of Transworld Business Advisors, Miami/Fort Lauderdale, FL

How to find the right business broker 17


Connections

The successful sale of a business often rests on serendipity: someone happens to know someone who knows someone looking for a particular type of business. The more connections the broker has, whether to lawyers, accountants, entrepreneurs and so on, the greater the chance of a lucky break.

Spotting charlatans or incompetents

Should you encounter the following issues then be ready to consider an alternative broker.

Pushiness

“The business brokerage world is fuelled by inventory. The old adage is ‘get listings’. Personally, I think it is an archaic approach. When you meet the broker, if they push for you to sign a listing at the first meeting, forget them. You want a broker whose primary agenda is to learn about your business. You want someone with confidence in their ability to prove their worth to you without a big sales pitch. You want the broker to honestly express whether or not they feel your business can be sold, and if not, what recommendations they may have to get it to that point.”

Richard Parker, founder of Diomo Corporation in Fort Lauderdale, FL

Up-front frees

Many in the industry feel large up-front fees are best avoided. If they get most of their money at the outset the incentive to find a buyer is thus reduced. And where receipt of their fee is contingent not on closing a sale but on securing the listing, there’s a huge incentive to tell the seller what they want to hear – “You have a great business, you’ll get a lot of money for it, you’ll sell it quickly” – whether it’s true or not.

Excessive optimism

A virtue in entrepreneurs, too much optimism in business brokers should arouse suspicion. Many entrepreneurs overvalue their business and if the broker seems to ready to accept your unscientific gut valuation without conducting their own, more considered appraisal, then alarm bells should ring.

“Sometimes you’ll have inexperienced, or less than candid, brokers who’ll suggest that they can achieve an all-cash deal, which ingratiates them and helps them get the assignment. But in fact, that works against them down the road when they can’t deliver on it.”

Tony Calvacca, partner at New York Business Brokerage Inc in Melville, NY

Calvacca says that brokers should warn sellers at the outset that some element of seller finance – where the vendor accepts some of the sales price in tranches (see page 51 for the section on seller finance) – will probably be required.

“Master of none”

Beware, also, brokers who specialize in real estate and for whom business sales is a peripheral part of their business.

Preparing your business for sale 18


4Preparing your business for sale

6-9 monthsThe sales process can vary in length but generally takes

“Preparing your business to enter the marketplace ensures you receive the maximum possible value at closing. Business sale structures vary and how

you plan for the sale and structure the deal dramatically impacts the return you receive on

your investment.”Perry Sheraw, executive vice president of

eBusinessAppraisals.com and managing partner of Sugarmill Media LLC



So you’ve decided you’re putting the business on the market – now you need to make it as attractive as possible to buyers.

So, how far in advance of putting the business on the market should you begin preparing your business for sale?

“It probably varies with the type of business. A lot of businesses take about 15 months to prepare for sale, but most people are surprised when you say 15 months – they think that’s too long. It normally takes around six months to sell a business – if it can be sold.”

Andrew Rogerson, owner and MD of Rogerson Business Services, Sacramento, CA

Exit strategy

Many proprietors have an exit strategy: deciding months or years in advance when they intend to sell, what they need to maximize the value and how – or even if – that is achievable within the time frame.

“A lot of business owners wake up one morning and say ‘I’m done I’m putting the business on the market.’ It can be a quick decision, or they think about it for a long time, but they fail to take the right steps to put things in place. It could take six months to finally put the business on the market and sell it, but if you haven’t been reporting the sales, improving the look and feel of the business, etc, you’re wasting that time. It takes a long time to sell so it stretches things out if you haven’t prepared properly.”

Andrew Rogerson

Follow these five steps to maximize the appeal and sale value of your business.

Ballpark valuation Get an independent valuation from a qualified business broker or accountant (see page 16 on finding professional advice or page 23 on how to value a business). Impartial and experienced in valuing businesses, they are better placed to provide a realistic, objective valuation than you are. Even before you approach a broker you can gauge the market by checking the prices of similar businesses – in terms of sector, location, size, revenues – for sale on BusinessesForSale.com.

“The sooner the better to get a good handle on the value of your business and what you need to do to get the most of your financial and sweat equity.”

Perry Sheraw, executive ice president of eBusinessAppraisals.com and managing partner of Sugarmill Media LLC.

Books and records First and foremost, prospective buyers want to know how much income a business is generating. Up to date, tidy and accessible books and records are vital.

“My top tip is to keep good books and records. Being able to really show a buyer where the income, sales and expenses are really facilitates the sale.”

Andrew Cagnetta, CEO of Transworld Business Advisors, Miami/Fort Lauderdale, FL

Approximately what proportion of sellers are guilty of not allowing enough time to prepare their business for sale? (To brokers)

The vast majority (80% or more) 32%

A majority (50-80%) 40%

A significant proportion (25-50%) 19%

A minority (1-25%) 7%

Very few, if any (0-1%) 2%

0

5

10

15

20

25

30

35

40



“Make sure your financials and records are accurate and clean and readily available. Most people don’t really care what the business looks like if you don’t have good books.”

Katrina Loftin-Winkel, managing director of the BTI Group’s Reno and Sacramento business team offices

Your books tell a buyer as much, if not more, about your business as its premises and staff. If your books are in a mess then it’s reasonable to conclude that your business is a mess.

Incomplete accounts betray one or both of two things: incompetence or dishonesty (i.e., you are hiding something). Either way, the buyer’s interest will quickly dissipate.

“One of the most important things is that sales are being reported. Some business owners tend to put some money in their pocket, and when that’s happening you can’t show it on your tax returns. All lending, all analysis by the buyer, goes off the tax returns, so if the tax returns don’t show the correct level of sales then that will affect the selling price. Report all your taxes for at least 12 months to get them on your tax return – because that’s the basis of a lot of negotiations about the sale price.”

Andrew Rogerson

Premises and equipment

Tidying and cleaning your premises won’t add thousands to your asking price but filthy, untidy premises can deter buyers – first impressions count. Easy and cheap to do, sprucing up your office, shop or factory is a no-brainer. You may even repaint or refurnish some areas, perhaps buy some plants, pictures or anything else that makes the place more appealing.

“One thing I encourage sellers to do, one of my golden rules, is to look at the transaction through the eyes of the other party. A lot of sellers are so used to doing the same things day in, day out. It’s their world, it’s how they see things. A buyer brings a different perspective. They’re seeing it for the first time, so they’re looking

at the visual condition of the business: is it painted? Does the carpet need replacing? Does the equipment need replacing? Do the employees look motivated? All sorts of things like that.”

Andrew Rogerson

Paperwork and documentation

“Whether you require professional assistance or do it yourself, take the time to review all your legal documentation, including incorporation papers, leases, business permits and contracts with both customers and vendors. No buyer wants to weed through mounds of expired and irrelevant old documents.

“Make sure the key legal paperwork is current and accessible. Most business sales take months or more and often include a provision to keep the seller on as a consultant to get the administrative needs in order. Save yourself some work later by getting the document library in order now.”

Perry Sheraw

“If it’s a corporation make sure the minutes are recorded correctly. Check through the financial statements and do some due diligence so you’re ready for questions the buyer is likely to ask you.”

Andrew Rogerson

Set Your Business on AutoPilot

Parents will know how painful it can be to leave their children at home with a childminder for the first time. But for all the upset it provokes, it’s an important step on the road to the independence of adulthood.

Similarly, Perry Sheraw suggests that leaving the business to operate without you is an important staging post onto independence – of the business from you and you from the business.



Case studiesHow did you prepare the business for sale?Katrina Loftin-Winkel sold Sand N Sage Lodge, a motel in Hawthorne, Nevada:

“First we made sure our books and records were in order. We also had to make sure someone could come in and take over. At the time my partner was hands on so we had to train someone to take over her duties.

“We did not want employees to know the business was for sale but we were able to cross-train them so they could do several jobs and even though we checked in often, we tried to be more hands off.

“We also had to make sure the business looked good. We updated signage and repaved the parking lot and made sure the business was always clean.”

Andy Meng sold Infront Webworks, a web design, development and marketing company in Colorado Springs, Colorado:

“We kept the sale in mind for months, or even years, before selling. We groomed the business by scouring our expenses to ensure we weren’t spending additional money on things we really didn’t need.

“We classified revenues properly, made the balance sheet look really good and the cash flow financials look really good – and the only way to do that is to plan in advance.

“What it really boiled down to, I think, was having good financials and making sure the business showed some growth or profitability – that’s what helped to sell itself.”

“If you can’t imagine your business running without you, chances are your staff, clients and vendors can’t imagine it without you either. Creating a plan that takes you out of the picture makes for a more salable product.

“You can sell this succession plan as part of the sale. This plan can include you or not, but what’s most important is that you can prove to your potential buyer that this business can function without you. Include this in writing in the final sale of the contract.”

Perry Sheraw

Get your advisors in place

Sheraw deploys a sporting analogy to explain the need for a qualified, experienced advisor:

“Before you go to the big game, your coaches prep you on strategy. Same is the case for going to market with your business: your financial advisors and legal team are there to discuss strategy and help you throughout the process.”

Perry Sheraw




“I made sure there were no outstanding balances. I worked hard to ensure that the incoming owner wouldn’t have any issues. I didn’t want to promise that the business was doing well and slack off in the last couple of months, so I made sure the business kept on doing well and paid its dividends.”


“We’ve been in that business 6-7 years altogether before we sold – not that particular location, but overall we’ve been in that industry eight years or so. I’d say tidy up, obviously. Other than that, no, nothing else.”


“We secured contracts for the company in terms of 20 years or more.”

How to value your business 23


5How to value your business

“Business valuation is one of the trickiest things in business and is unfortunately more art than science. There are almost never two different businesses that are alike. For most commodity items, whether it’s a car or a property, at least there’s a comparable. You can say: “This is what we could value this car at, based on the fact it has cruise control, whereas this one doesn’t. But when you talk about selling your business they are so wide-ranging in terms of customer concentration and revenue consistency, it’s very difficult to put a price on it.”

Ken Ducey, MD of Princeton Capital LCC

Valuing the business is at once the most important and difficult part of the sales process. Pitch the price too high and you’ll deter buyers; set the bar too low and you won’t reap the reward that the years of commitment and financial risk merit.

Businesses are generally, but not always, valued by a multiple of profit. If that sounds relatively straightforward, then it isn’t.

Whereas you can quickly a realistic valuation for determine your home by comparing it to similar sized properties for sale in the same neighborhood, a business’s value is influenced by more than bricks and mortar: turnover and profit; goodwill; quality of staff; and inventory to name a few.

There are several business valuation models. Which model is appropriate to your business depends on its size, its sector and the circumstances of your sale. Valuation experts will often use elements of more than one method to suit the idiosyncrasies of the business in question.

Valuation methods

Multiplier of earnings

Depending on the size of the business and its sector, a ratio is applied to the annual profit. The ratio is usually chosen according to an industry benchmark.

Above all, a prospective purchaser wants to know how much income the business will generate, so it’s hardly surprising that this is by far the most common valuation method. Based on previous years’ profits a buyer can quickly calculate when they will get a return on their investment.

But past performance is not, of course, always a reliable indicator of future performance. Earnings can be inflated, for example, by a one-off, large contract or, taken in isolation, will not reflect the value of recently acquired customers. Nevertheless, as long as other, relevant variables are accounted for, it is the most logical approach in most cases.

Asset-based valuation

The sum total of the business’s liabilities are subtracted from the total value of the business’s assets, most obviously premises, equipment and inventory. Intangible assets, such as goodwill and staff, are more difficult to value. Overlooking income, the asset-based method is suited to businesses in liquidation.

Entry valuation

The valuation expert calculates how much it would cost to start the business from scratch: the cost of buying premises and equipment, of developing the products and services, of recruitment and training, of marketing campaigns and so forth.

How to value your business 24


Discounted cash flow

Based on future cash flows, which are extrapolated from current cash flow, the value is discounted over time to reflect the risk – i.e. the farther into the future you project, the shakier your predictions. The discount rate, typically between 15 and 25%, is set depending on the perceived level of risk.This method suits businesses with stable cash flows, such as …

Rule of thumb

Often incorporation elements of more than one of the above, rule of thumb methods are tailored to the peculiarities of a specific sector. Take retail businesses for example: many shops are valued according to a multiple of turnover rather than earnings

How buyers decide whether to meet your valuation

“What it really comes down to is: what risk is there for a potential buyer in that business? And obviously, the smaller the risk, the greater the value of that business to that buyer, and vice versa. When a buyer looks at your business they ask what you can predict and what assurances you can give that the revenue and profits are going to happen over the next three, five and 10 years.”

Ken Ducey

Any business valuation is undermined when the buyer can identify ways in which the assumptions on which it is based have a strong chance of unravelling. Say, for example, the business sells an innovative product that isn’t patented or if technological advances are liable to damage sales.

But as well as gauging the risk of things going wrong, the buyer will also consider the prospect for the business outperforming the vendor’s forecasts, in which case he or she may sense a bargain.

It’s all guesswork of course. And one only has to look at the consistently inaccurate projections of economists to know that people aren’t very good at predicting the future. Nevertheless, buyers will consider risk and growth factors like:

Risk

Vulnerability to new competition: � sectors with low barriers to entry, such as retail or web commerce, are the riskiest options here

� Vulnerability to technological change: the looming decline of DVD rental would have been obvious to all but the most naïve of buyers in the late 90sVulnerability to changing tastes: � If the product or service is liable to fall dramatically out of fashion (remember drive-in theaters?)

Growth

Cost cutting: � A buyer may identify areas where operating costs can be slashed without compromising serviceImproving performance: � Any buyer will think they can do a better job than his or her predecessor, boosting staff morale, customer service and the quality of productsDiversification: � The buyer may identify opportunities for new products or servicesUniqueness: � The business possesses something – say, a wholesaler with unrivalled proximity to road and rail or a software company with pioneering proprietary technology – that its rivals don’t

Buyers may pay a premium if they spot an easy way to add value, but resist the urge to inflate your valuation because of chimerical ‘potential’.

“Too many sellers want to be paid for potential, but the buyer is the one that will do all of the work to take advantage of the potential, so they will not want to pay the seller for it.”

Andrew Rogerson

After all, hundreds of fledgling dotcoms have the ‘potential’ to become the next Facebook or Instagram – the vast majority will fall dramatically short, however. You can circumvent the ‘potential’ problem by making a portion of the sale price contingent on the achievement of certain financial targets, either sales- or profit-based. Called an earn-out, this is explained in more detail on page 49.

Overvaluation 25


6Overvaluation

18%of businesses for sale have been on the market for more than two years

27%of those report few inquiries and no serious buyers in more than two years

Overvaluation 26


“When you develop your opinions on the basis of weak evidence, you will have difficulty interpreting subsequent information that contradicts these opinions, even if this new information is obviously more accurate.”

Nassim Nicholas Taleb (2007)

While Nassim Nicholas Taleb was referring to ideological positions when he wrote this line in The Black Swan: The Impact of the Highly Improbable, the axiom holds true for business valuation.

Regardless of intellect – and Taleb proclaimed himself guilty along with everyone else – we have an innate capacity to interpret information to suit our agenda. And a business owner approaches the puzzle of business valuation with an unconscious desire: he or she wants it to be as valuable as possible. They are therefore liable, unconsciously, to overplay positive data – large revenues for example – and downplay the negatives, like their importance to the business.

Having invested tens or hundreds of thousands of dollars and thousands of hours, sellers also have an understandable emotional connection to their business.

Taleb also mentions man’s innate weakness for overrating his own abilities – and a product of his or her decisions and toil, an entrepreneur’s business is the ultimate expression of his or her talents. So with judgment clouded by emotion and ego – let alone a lack of experience in valuation – no one can be surprised that business valuation is the most common mistake made by sellers.

“I’ve never come across a business owner who has undervalued their business. Overvaluation is probably one of the biggest mistakes sellers make. I can give you example after example of overvaluations. It took one seller about three months of the process before he got me to do the valuation and he thought the business was worth $1m. But by the time I got his tax returns and did the analysis I had to deliver the unfortunate news that it was only worth about $110,000, so he was a bit shocked.”


Another valuation came in at $1m – a full $7m lower than the seller’s guesstimate.

Approximately what proportion of sellers are guilty of overvaluing their business? (To brokers)

0

10

20

30

40

50

The vast majority (80% or more) 36%

A majority (50-80%) 43%



Very few, if any (0-1%) less than 1%

Overvaluation 27


The problem is amplified by the fact of it being such an inexact, sometimes arbitrary science.

But if it’s impossible to generate a single, definitive valuation, how can anyone be certain a business is overvalued? Well if it fails to attract interest, that’s a pretty good indication. Put simply, a business is worth what someone is willing to pay for it – simple as that.

The most obvious way to circumvent the dangers outlined above, of course, is to appoint a suitably qualified, independent valuation expert – preferably with experience in your sector and locality. Even then, business brokers can recount examples where vendors have ignored the independent valuation they paid good money for and failed to find a buyer as a consequence.

“People think: ‘I’ve been working on this for 20 years so it must be worth a lot of money” – but it’s really about cash flow. That comes as a shock to many business owners; they put their heart and soul into the business and think it’s worth a lot of money.”

Andrew Rogerson

In the opening chapter on deciding when to sell, leading brokers suggested that you take into account the amount of money you need to finance the next stage of your life, which might be retirement or another venture.

However, what you need is not the same as what you should ask for; wishful thinking should play no part in your valuation. That said, many of the 70%-80% of businesses that fail to sell were priced with the sum required by the owner to fund their retirement or next venture in mind. When the businesses fail to find buyers at that price they take it off the market rather than accept less.

“If they’ve owned the business for many years or recently spent a lot of money fixing problems, it’s not uncommon for sellers to want to earn back some of that money. But buyers have many businesses to choose from. Most companies look similar and buyers are rarely emotionally attached to a particular business, so have little problem walking away.”

Andrew Rogerson

Anecdotal

Beware the danger of extrapolating from anecdotal examples.

“A seller will always bring up a story of someone who received a certain amount for their company and they believe their business is very similar. But there are problems with that. One is that the other business might have had some sort of proprietary technology or a whole bunch of things that made that business very different. Number two is that a peer says ‘hey, I received X dollars for my business.’ But what does that mean? Did they receive that in cash or did they receive zero down in cash and some sort of earn-out, some sort of projected value that they’re supposed to get over five years?”

Ken Ducey

Which brings us to another factor in what a buyer is prepared to pay: deal structure, which relates to another, risk. This is covered in the chapter 12 on page 46.

Serendipity

Now, it’s perfectly possible to defy your broker’s more sober valuation and strike lucky. Perhaps a ‘synergistic’ buyer – one who thinks your business can bolster their own company or help it diversify – discovers your business. Or someone simply falls in love with your restaurant. Or someone comes along with more money than sense.

All those things can happen – just not very often.

“Here’s the reality check: only about 20% of businesses actually sell, which comes as a surprise to business owners who presume, like a piece of furniture, it will eventually sell. It’s not always the case.”

Andrew Rogerson

Even priced conservatively, businesses can languish on the market for years without attracting a serious buyer. Sometimes it’s worth stating the obvious: the higher you pitch the asking price, the longer it is likely to take to find a buyer – if you find one at all.

Overvaluation 28


Now, you can always drop the price later should it prove prohibitively high. But how quickly do you want to sell?

Rogerson recalls one client, a pregnant entrepreneur who wanted to find a buyer before her baby was due.

“I advised her on what price to sell it for and she decided that she wanted to sell it for a higher price. But her baby arrived before she could sell the business so she just ended up just closing it down because we couldn’t find a buyer for her. So life interferes with selling a business, so if that is something you want to do then you need to get focused on it.”

Andrew Rogerson

Overvaluation 29


FacebookMore than one billion users worldwide. Strong growth in emerging markets. Revenues of more than $5bn. It was difficult to overstate the value of Facebook – and yet investors managed it, and by some margin. With stock at $38 a share the company was priced at $104bn for its botched IPO in February 2012, the largest dotcom valuation ever. Shares went into freefall after Technical glitches in the opening day’s trading briefly arrested the slide. JP Morgan and Goldman Sachs cut their earnings forecasts and by May Facebook had lost a quarter of its value. Valuing itself at 28 times revenue, Facebook had fallen prey to a hubris unique to dotcoms, which frequently believe themselves above the laws of profit and loss.

MySpaceA magnate who bestrode the analog era, Rupert Murdoch came to regret his 2005 purchase. “We screwed up in every way possible,” he tweeted of News Corp’s ill-judged acquisition of MySpace in 2012. For a time the $580m paid for the then dominant social network by News Corp had seemed a bargain. But when the MySpace community reached 100 million users in 2006 it proved to be the high water mark. In 2011 News Corp recouped a mere $35 million – nearly 17 times less than it paid and 314 times less than its 2007 valuation of $12bn when a Yahoo merger was in the offing – when it sold the website to advertising network Specific Media. enron

The warning signs – big, red, flashing neon – were there. A share value trading at 55 times earnings, more than twice that of the S&P 500, for starters. And yet Enron itself declared itself worthy of double that – $126 a share. The texas-based energy, commodities, and services company kept details of how it made its money confidential for “competitive reasons” and the data it did release was impenetrable even to Wall St’s top analysts. A year after declaring revenues of nearly $101bn it was declared bankrupt and the biggest corporate scandal in history unfolded. ‘America’s most innovative company’ for six consecutive years (take a bow, Fortune Magazine) was innovative only in the fields of accounting fraud and insider trading. Several Enron executives went to jail and the Sarbanes-Oxley Act was passed.

GrouponThankfully, small-business buyers can examine a business’s books and premises before purchase. No such transparency in the murky world of IPOs, where facts are withheld – quite legally – from shareholders. GroupOn revealed a “material weakness” in its internal controls over financial reporting – but only after shares had been purchased for $20 during its 2011 IPO. Since then shares have sunk as low as $2.60. Executives are not legally required to disclose problems with internal controls due to a flaw in the Sarbanes-Oxley Act. GroupOn’s hubristic projections of reaching $1 billion sales at record-breaking speed proved hollow when it reported a fourth-quarter loss of nearly $10m in its first earnings release as a public company. Google had offered $6bn for Groupon in 2010, a year before its IPO.

XoMaSince its inception in 1981 Xoma has burned through $700 million without ever generating an profit or marketing a drug of its own. Biotech companies, which tend to target the most intractable diseases with experimental technology, typically limp along for years before making a big breakthrough. Only 54 of 342 publicly traded American biotech companies were profitable in 2006, according to Ernst & Young. $4.08 a share at the time of writing, Xoma’s stock price may yet eclipse its previous peak of $32, reached in both 1987 and 1991 – or it may never again get near. For now, investors keep on ploughing in money. Why? The same reason people play the lottery: the low probability, high returns gamble is seductive.

FIVenotorIouSoVerValued buSIneSSeS

Finding Buyers 30


7

50%25%48%32%11%37.1%27%

I want a business with a good trackrecord and will pay a premium

I’d prefer untapped potential to a profitablebusiness with little room for growth

I will buy a struggling business ifit’s realistically priced

I would enjoy the challenge ofturning round a failing business

The threat of recession hasinfluenced my sector choice

I’m expecting to find bargainsbecause of the economic climate

I don’t need to borrow much, or any, cash

Finding Buyers

This section is written by Roger Murphy, president and CEO of Murphy Business & Financial Corporation in Clearwater, Florida, with contributions from other leading brokers.

Finding Buyers 31


57%of all prospective buyersare business owners

(of whom16% had already sold their business)

12%were a senior manager

8%were a senior executive

4%

6%More than one in 20 categorized themselvesas professionals

Nearly one in five (18%) of those browsing businesses for sale are currently unemployed, neither owning a business nor having a job.

One in 50 (2%) are long-term unemployed. One in 10 were prompted to consider buying a business eitherbecause they’ve been laid off or after quitting their job in frustration.

1 in 25 performor have recently

performed asales role…

6%occupy or

recently occupieda secretarial / administrative

position.

4%…while the sameproportion comefrom a customer

servicebackground

Develop a Marketing Plan – Understand who’s buying

Before you begin the selling process, it is important to understand why buyers want to purchase a business.

You need to understand what buyers are looking for and who these typical buyers are. The seller must be as targeted as possible. The goal is not to find lots of prospects, but to find one good prospect: the right buyer.

An established business has much to offer a prospective buyer. A proven product or service exists as well as a customer base. Typically, there are experienced employees and managers in place (and many choose to remain with the company after the sale is complete). There is a cash flow from the day the buyer takes over. The company is already accustomed to paying its debt service and a reasonable salary for the owner.

Why is the prospect looking?

They have the desire to be their own boss and �control their destinyThey want the lifestyle of a business owner, �which generally allows them to be in charge of their schedule and responsibilitiesThey want financial independence – to make �money and build the assetThey have the desire to grow and improve the �business

What matters most to buyers?

Proven, verifiable books and records �A reasonable listing � price: buyers will pay fair market value

� Leverage and terms: bank financing, owner financing (buyers prefer to use as little of their personal funds as possible)Solid, verifiable � cash flowFurniture, Fixtures & Equipment (FF&E) �properly valuedA positive appearance to the facility and �reputation of the businessFavorable lease terms and options �

� Training: many buyers prefer the seller to remain involved for a reasonable transition periodCovenant not to compete and non-solicitation �agreementA solid reason why the owner wants to sell �the businessExperienced � employees willing to remain with the company No last-minute surprises �

Who are typical buyers and where do they come from?

Assuming you have not already identified a buyer (an unsolicited buyer, for example, or an interested friend or family member), you must understand where buyers come from and who they typically are.

Finding Buyers 32


How many businesses have you bought before?

Individuals

Often they are displaced or actively employed corporate executives. Buyers who are no longer employed are usually ready and available to act quickly. They are typically looking for a ‘job’ to buy and small-business ownership provides the opportunity to replace their lost income immediately. They will generally consider

geography an important issue, as many own a home and prefer not to relocate. Usually possessing a highly professional resume and good credit rating, such buyers are strong candidates for outside financing. Corporate executives who are still employed tend to be in less of a hurry to abandon their jobs and secure salary. They tend to overanalyze deals and are slow to make decisions. Often, they are simply dreaming of owning the perfect business and are never able to pull the trigger on a deal.

Corporate Buyers

There are several types of corporate buyer: strategic buyers and competitors, suppliers and customers. A seller must be careful to fully understand what could happen if he or she fails to complete a deal with a corporate buyer after confidential information has been disclosed.

Strategic Buyers

The strategic buyer operates in a similar – but not identical – sector. Seeking an acquisition to enhance his existing business, this buyer usually pays the highest price because it gives him access to a related business less expensively and more quickly than if he or she were to start a similar business from scratch.

Infographic

23% of business buyers want to expand an existing operation or diversify its product or �services At 30%, those on the hunt for manufacturers were the most likely to be making an �acquisition to strengthen and complement their existing business7% already own a business in the sector in which they are targeting acquisitions, while a �further 8% either currently work or have previously worked in the industry

I’ve never bought a business before 44%

1 19%

2 16%

3 8%

4 or more 14%

Finding Buyers 33


Competitors/vendors/customers

A seller must approach interest from competitors, vendors or customers with extreme caution. In these cases, a seller exposes his business to individuals with the capacity to harm the seller if a deal collapses. These buyers often search for synergies, which reduce costs and allow cross-selling to gain market share, that are best achieved by combining the companies.

Financial

Financial buyers are primarily interested in the company’s cash flow. They may be wealthy individuals or companies looking to invest excess capital for a good return and eventual gain on resale. Their primary emphasis is on financial statements.

Financial buyers are rarely interested in day-to-day operations and invariably expect the existing management team to remain in place after the sale. While most seek highly profitable companies, some are interested in turnaround situations or ‘broken businesses’.

One key to finding the right buyer is to prepare a systematic, carefully considered plan in advance of putting your business on the market. Working haphazardly seldom yields a suitable buyer in a reasonable time frame.

One of the dangers of having a business on the market for too long is the potential for broken confidentiality. It is critical that suppliers, customers, employees and competitors do not become aware of your plans to sell.

Marketing material

“A tip for a seller might be to check their listing every once in a while online. And you guys [BusinessesForSale.com] have a great back end to your website which they should check their hits on.

“And maybe refresh the ad every few weeks. And if you’re not getting action, maybe it’s time to change the price or the terms. So we do experiment internally with these kind of things; we might change the category or the text to keep it out there.”

Andrew Cagnetta, CEO of Transworld Business Advisors in Miami/Fort Lauderdale, FL

Which statement best describes the level of interest you’ve had from buyers? (To sellers)

Plenty of enquiries but no 26%serious buyers

Plenty of enquiries including interest 17%from a serious buyer(s)

Few enquiries but with interest from 13%a serious buyer(s)

Few enquiries and no serious buyers 31%

No enquiries 13%

Finding Buyers 34


Case studiesHow long did it take to find a buyer?

Andy Meng sold Infront Webworks, a web design, development and marketing company in Colorado Springs :

“It took about two weeks. My wife and I decided to sell at the end of 2011. We started marketing the business at the beginning of 2012 and had calls from a number of buyers right away. Within two weeks we had a buyer and had started on a path of due diligence and we ended up selling it to him.”


“Four months.”

Steve Price sold Kamehameha Environmental, a renewable energy company in Hawaii:“The buyer was watching the company develop, so I do not have a time frame.”


“Approximately two months. We did get a few inquiries – approximately 15-20. We had a lot of inquiries from out of state so approximately 6-7 were from serious buyers.”


“I haven’t found a buyer yet. I received 2 inquiries.”


“It took me about two months to find the right buyer and conclude the deal. I had the advert up on BusinessesForSale.com for three months with a total of 15 inquiries. Five of them were serious.”

Marketing your business with a BLI and profile 35


8Marketing your business with a BLI and profile


Case studiesHow did you describe the business in your marketing?Andy Meng sold Infront Webworks, a web design, development and marketing company in Colorado Springs:

“We spent a fair amount of time putting together a listing and I talked to a number of people who were marketing experts. I didn’t get specific direction from them, but they gave me tips on how to write an ad with a lot of good information. It wasn’t deceitful but we highlighted the positive information about the business and had that prominently in the ad.

“In terms of the ad itself it’s about putting in good detail, but not too much. And just writing the copy well, making it professional. Think about how you would like to see the information if you were a business buyer.”

Ravi Vanjani sold The Front Porch Grill, a fast-food restaurant in College Station, Texas

“You probably want to include in your marketing material the description, how many months it’s been on, how much your sales were at the start compared to now, whether you’re breaking even or

making some profit. You may want to say that to generate interest. A lot of people ignore ads after looking at the value of the business and the location. But if it was the right venture they would actually want to know where you stood in a few months.

“And what is appealing about the location? A lot of people have never been to College Station, Texas, but they just wanted to invest in something. So I had to tell them a lot about it, why I had opened it there. It was a college town and college towns are surrounded by bars. Right in the middle of bars, it was the perfect location.”

Shreeraj Parikh, sold a convenience store/cigar shop in Orange, California

“Don’t only list the positives, list the negatives as well. If you don’t, they’ll look into it.

“Obviously you want to eliminate as many questions from the phone call as possible. You want them to screen you before they call you; you don’t want them to call you with lots of unnecessary questions. You want to clarify almost all information, apart from detailed financial information which is confidential.”

Marketing your business with a BLI and profile 36


The Business Listing Information sheet (BLI) is a basic summary of the company being marketed. The Confidential Business Profile (Profile), meanwhile, is a more detailed presentation of the business for sale.

The BLI provides the buyer with a preliminary overview of the company. This is generally a one- or two-page descriptive outline of the business. This is also the format you would follow were you to list the company on a website showcasing businesses for sale. And the BLI would serve as an executive summary report for the confidential Profile.

The Profile, which is a more comprehensive report, is typically prepared for larger business entities or where buyers require more than just basic information. The Profile will have some variations from business to business, based on what type of company is being presented. It contains far more detail than the BLI and should only be used when the buyer has expressed serious interest in the company and signed the Non-disclosure confidentiality agreement.

We will present both types of reports for your reference, so that you will be able to prepare what is most appropriate for your particular business. Typically, the company offering a Profile will also prepare a BLI to serve as an executive summary to first determine if the buyer has an interest (before disclosing the entire information package). It is more effective to maintain confidentiality if information is given out in stages as the seller determines the level of interest of the potential buyer.

Business Listing Information sheet (BLI)

This is the introductory document given to a buyer to determine if there is an initial interest in the business. The BLI is a stand-alone piece, typically one to two pages, and may be part of the Profile. The BLI is also used to market the listing on websites featuring businesses for sale, with certain confidential information omitted. A blind BLI should also be prepared to use when confidentiality needs to be protected. This is the same as the regular BLI but omits the general business information (name and address) section.

A typical BLI includes the following:

General business information, including the �company’s name, address, telephone number (do not disclose this information until a Non-disclosure Confidentiality Agreement is signed)Hours of operation, number of employees �(and managers) and weekly number of hours the owner works in the businessOrganizational type (corporation, partnership, �sole proprietorship)

Confidentiality 37


9Confidentiality


It is important to remember that most buyers have not purchased a business before. It is equally important to remember that you must build a relationship with a serious buyer with whom you enter negotiations.

As the seller, you will provide confidential information regarding the business to the buyer. In return the buyer is expected to demonstrate his good faith and financial capacity to complete the transaction.

We have attached a Buyer’s Disclosure Statement and Financial Statement to be used with prospective buyers. It is advisable to complete these forms before giving the buyer your confidential business profile (Profile).

It is appropriate to provide the blind business listing information sheet (BLI) prior to receiving the buyer’s disclosure statement and financial statement is appropriate; however, we caution against revealing more detailed information about your business until you are certain the buyer is capable of completing a purchase.

You will also screen the buyer – just as they screen you. It is important judge the sincerity of the buyer’s intentions, whether he or she qualifies financially and has the ability to manage the business.

Unfortunately, you will encounter a few tire kickers. Someone setting up or running a rival business in the same industry can inquire on the business to obtain information under false pretenses.

Should you suspect foul play, it is best to move on as quickly as possible. The goal is to find a serious buyer who writes an offer to purchase and puts up an escrow deposit as soon as is practical.

“It’s a delicate balance. I would tell people that they need people in their corner to tell them when to give certain information and when not to give certain information. Sometimes it varies by buyer: if you’re dealing with a competitor you don’t want to disclose things like customer lists. But if you’re dealing with someone who is not in the business, then maybe it is OK to disclose some of those things early.”

Andrew Cagnetta, CEO of Transworld Business Advisors in Miami/Fort Lauderdale

Limited in number, buyers are a precious commodity. Buyers will contact you for a variety of reasons – not all of them valid.

There are many buyers who:

� Are just lookersHave � unrealistic expectations (pipe dreams)Do not possess the required � capitalAre experiencing family or other issues which �could impede Are under heavy influence from outside �advisorsHave geographic preferences �Feel the location is unsuitable (and the �company cannot be moved)Will judge the business too small �“Like it, but …” �

Non-disclosure/Confidentiality Agreements

Buyers should sign a non-disclosure/confidentiality agreement before any private or sensitive information is disclosed. Since the

Confidentiality 38


seller will subsequently present confidential information to the buyer, it is imperative that the buyer signs and fully understands the agreement.

If the buyer is reluctant to sign the agreement then it is advisable to halt the process and move on to another prospect. A sample non-disclosure/confidentiality agreement is provided, as well as a blank form for your use.

‘Bending the truth’

The need for confidentiality can create a catch-22 conundrum: where sensitive information must be withheld until a serious buyer can be found, but it’s difficult to attract any buyers when the business’s merits cannot be advertised without disclosing sensitive information.

There is, thankfully, an ingenious solution.

“I’m not saying you should lie, but it’s not necessarily bad to bend to the truth as to location or what kind of business it is to protect the seller. For example, we had a knife distributor in Florida which did millions of dollars. Had we put that information on the internet everybody would know who it was. So we changed the location from Florida to the southeast of the US and instead of calling it a knife distributor we called it camping equipment and later sporting equipment.

“We also had an advertising firm that was so large that, had we named the city it was in, everybody would have known who it was. So we advertised it as being in another city. Again, we wanted to attract advertising companies to inquire but we wanted to throw people off the scent too.

“Once we sign a confidentiality statement we obviously disclose everything.”


Avoiding disruption when selling your business 39


10Avoiding disruption when selling your business

This section is written by Jim Hoffman, a New York-based broker and author of the IT Due Diligence Guide, with quotes from other top brokers

“If you don’t already have a buyer lined up, you will need to spend a lot of time on the process of selling your business. It can sometimes take hundreds of hours of dedicated time and could distract you from doing what you do best: running your business.”

Roger Murphy, president and CEO of Murphy Business & Financial Corporation in Clearwater, Florida

You still need to worry about the day-to-day operation of your business during the sales process. In fact, many deals include a provision requiring you to conduct business ‘in the normal course’ until the final agreements are signed.

“So many owners plan on selling their business but as soon as it is on the market they stop doing the hard work that made the business what it is.”


You’ll need to reserve enough time for running the business amid competing demands related to the sale. To this end you must be prepared and organized, have the right advisors in place (see page 21) and maintain discretion and confidentiality (see page 37).

Be prepared

See page 18 for a more detailed guide to preparing your business for sale.

Ensure that all shareholders are fully committed to the sale – otherwise, you are risking the business’s future and at the very least wasting everyone’s time.

Should dissenting shareholders veto a deal, the acquirer may be reluctant to later reignite the deal after having his time wasted.

Understand the acquisition process

The internet is full of due diligence checklists. Understand what potential buyers might want to know and have that information ready.

Adherence to administrative best practice in the years preceding the sale will make for a smoother sales process. Up to date, tidy and readily accessible books and records, plus appropriate business systems, are important components to smooth, briskly concluded transactions that leave the business owner with ample time to run his or her business.

“A good small-business owner should keep their eye on the financials all the time because the buyer will always want to go back at least three years.”

Andy Meng, who sold Infront Webworks, a web design, development and marketing company in Colorado Springs

Avoiding disruption when selling your business 40


Have the right advisors in place

See page 21 for a more detailed guide to finding the right advisors.

You’re probably very good at running your business, but it’s unlikely that you’re an M&A expert. Appoint competent people you can trust to your management and transaction advisory team.

Even a small-business sale requires an attorney and an accountant with experience in acquisitions. You may also want to consider the use of a business broker.

Even if you’ve identified a potential buyer, there may be others out there who are a better fit. The fee you pay a broker or other deal advisor can easily pay for itself.

“It’s very important to get a good team of people with you through the sales process, so of course I’m advocating a broker to bring you through the deal, but you also need a good attorney and a good accountant and you need to make sure everyone understands their jobs and doesn’t overstep their bounds. You really do need help – especially if it’s a complicated sale.”


Hopefully you have some trusted lieutenants on your management team who can shoulder some of the load as well, because again, you can’t afford to spend 100% of your time on the sale process.

Keep things confidential

See page 37 for a more detailed guide to confidentiality.

It’s important to keep news of the sale confidential for many reasons.

If employees find out they may worry about their future. Some might think they need to be proactive and look for another job just when you most need stability in your day-to-day operations. In any case, they’ll probably want to occupy much of your time discussing the sale.

If your customers learn of a potential sale, they might wonder whether they’ll be dealing with the same people – who they presumably trust and

like – after the company is sold. They may see a prospective sale as a good reason to revisit their choice of suppliers.

Competitors will almost certainly try to use knowledge of a potential sale against you. Maybe they’re competing for the same customer. They could attempt to poach your current customers. They could even head-hunt your employees.Whoever they try to poach, whether potential or existing customers or employees, your competitors will seek to sow fear and doubt about an unknown future beyond the sale.

When the potential buyer visits your company during the due diligence process, they’ll probably need to meet employees who are unaware of the sale. To reduce suspicion, formulate a plausible cover story with the buyer’s due diligence team.

Examples my clients have used include “the board is performing an operational audit” or “we’ve hired a consultant to help us review and improve our operations.”

Selling a business is stressful enough on its own. Avoiding distractions caused by issues under your control will give you the maximum possible time to focus on the daily needs of your business.

Hoffman’s prescriptions are particularly important given the cost of neglecting daily operations. Because if the sales process can distract you from day-to-day tasks, then the consequences can rebound adversely on the sales process.

“The seller must keep their eye on the ball because a bank, if it’s bank-financed, will ask for 30 days’ sales numbers. If those numbers have dipped because the seller was paying attention to the sale of the business, that could hurt the sale – and I’ve seen it happen. So I would tell the sellers, again: they need help.”

Andrew Cagnetta

Why deals break down – and how to close the deal 41


11Why deals break down – and how to close the deal

What are the most common reasons for deals collapsing? (Tick a maximum of three)

“The Golden Rule is: put yourself in the shoes of the other party. If you’re talking to your buyer, try to understand what’s important to them. If you are discussing your lease with your landlord, work out what’s important to them, and so on.”

Andrew Rogerson

Few things in business are more frustrating than the collapse of a business sale, especially when the deal is tantalizingly close to completion.

So many hours of often tiresome work – the paperwork, responding to timewasters, showing people round the premises – proves to be in vain.

But at least you found a serious buyer, albeit they

0 10 20 30 40 50 60 70

Sellers deciding to take business 19%off the market

Buyers changing their mind 50%and withdrawing

Sellers being inflexible with 39%asking price

Inability of buyers to raise finance 63%

Due diligence uncovering problems 38%undeclared by seller

Personality clash/mutual mistrust 14%between buyer and seller

ultimately withdrew interest. Many businesses – more than many realize – languish on the market for months or years without finding a remotely credible purchaser.

Address the issue that doomed the deal and you have every reason to believe you can find another buyer and get the deal over the line next time.

Of course, deals can break down for reasons beyond the seller’s control. The buyer may withdraw after finding a more suitable business elsewhere or deciding not to buy a business at all.

But you can reduce the chances of a sale collapsing. Here are five typical reasons why sales are abandoned and how you can keep a deal on track.



The reason: Poor communication and slow delivery of documents

“I have one guy who wanted to sell a sandwich shop who’s been promising documents for three months. I’ve got a buyer for him but he’s just not organized.

“I’ve also got a couple of attorneys with one buying out the other. They can be difficult to deal with. The buying attorney wants to take his time but the selling attorney wants to keep the process going and is becoming frustrated. He wants to get the ball moving but the buying attorney wants to slow things down because he sees it as a negotiating strategy.”


Preventative measures: get organized, be reliable

“Feelings can get hurt and that’s a good reason to have a business broker: to manage the feelings and emotions. Whatever you offer to do, make sure you follow through and do it, so you build trust. If you offer to have a meeting, make sure you arrive on time. Be prepared, if you’ve offered, to provide certain documents promptly. Both parties are nervous of each other and don’t want to give away too much when they’re negotiating, so trust is a hard thing to build until you actually close the deal and everyone then relaxes a bit.”

Andrew Rogerson

Approximately what proportion of sellers, in your opinion, are guilty of being insufficiently flexible – i.e., unwilling to offer seller finance or stay on post-sale?

Although invaluable, the broker should not necessarily be a conduit for all inquiries, one prominent industry figure believes.

“It is imperative for any seller to have a meaningful dialog and channel of communication with the buyer. It is not always effective to relay every message through a broker. For any buyer to be comfortable enough to make an offer and ultimately pull the trigger, they need all their questions answered and want your assurances that you’ll be there for an effective transition period.”

Richard Parker, founder and president of the Diomo Corporation in Fort Lauderdale, Florida

The reason: the seller is inflexible

Refusing to countenance seller finance, assist with the transition process or lower the asking price are major bugbears among business brokers.

If a buyer feels like they’re the only party making sacrifices then pride as much as sense will drive them away.

Preventative measures: be prepared

Give yourself a better chance of realizing the asking price by being flexible with the deal structure (see page 45 for more details). You could accept a portion of the asking price in installments (see the guide to seller finance on page 51) and offer to provide consultancy and training beyond the sale to ease any misgivings the buyer has about your business (see page 55). The bigger the perceived gamble, the less a buyer will pay – and an acquisition will naturally seem safer if the outgoing owner offers his support post-sale and

Vast majority (80% or more) 11%

A majority (50%-80%) 27%





A majority (50%-80%) 27%






receipt of part of his or her asking price is linked to future performance.

Reason: due diligence uncovers undeclared issues

The largest and most complex deal many entrepreneurs will ever do, the sale of a business requires mutual trust to succeed. Should the due diligence process, where the buyer examines the premises, books and contracts and so on, reveal any discrepancies in your account of the business then it can fatally undermine the deal. For example, a survey of the premises could reveal undeclared structural damage or simple observation could invalidate outlandish claims about footfall.

“What else is he hiding?” many buyers will think. With their financial security potentially at stake, few buyers will negotiate with someone who has so flagrantly betrayed their trust.

Approximately what proportion of sellers, in your opinion, are guilty of exaggerating the business’s strengths or not being frank about its shortcomings?

Preventative measures: be honest

It’s not just outright lying that undermines trust; stretching the truth or declining to mention inconvenient facts can do for a deal. No buyer will blame you for highlighting your business’s strength’s and downplaying your weaknesses – just don’t hide anything.

So don’t describe a quiet side street as “a busy, high street thoroughfare”. And bold claims about scope for boosting revenue must be backed by plausible reasons – for example, if your café is closed at weekends then it’s worth mentioning the potential for extending opening hours.

The reason: the buyer is a ‘tire kicker’

‘Tire kickers’ are the bane of the business seller. Sometimes it’s a competitor with an ulterior motive parading as a genuine buyer; more often than not it’s a window shopper with neither the financial means nor courage to make a purchase.

Either way, some ostensibly interested parties will never actually buy your business, regardless of its merits or your charms. They’ll waste your time, distracting you from more genuine buyers and potentially forcing you to accept a lower price.

Preventative measures: qualify the buyer as soon as reasonable

So how quickly can you identify a tire kicker to prevent your time being wasted?

“That’s a really tough question. I don’t think you really can. Trust is built over time and it really comes through experience. That’s the point of having a broker involved – because we know which things to disclose at which point in the transaction. So if a buyer asks for tax returns up front, one of my processes is to make sure the buyer is qualified to buy the business. I go through a set of questions with the buyer, and I’ll reveal information if appropriate, while some things won’t be disclosed until later in the transaction.”

Andrew Rogerson

Part of the buyer’s qualifications, of course, is his capacity to finance the business.


A majority (50%-80%) 34%





A majority (50%-80%) 34%






“One of the first things I work out is whether a buyer needs to borrow and if the transaction can go forward. I get the banks involved early and make sure the buyer qualifies for finance.”

Andrew Rogerson

Should the buyer’s financial means fall short of your asking price, you needn’t discount him as a prospect; you could bridge the gap yourself – read page 51 for more information on seller finance.

The reason: lease dispute with landlord

“The number one reason the deal breaks down is that the landlord kills the deal. If you rent or lease the real estate the business operates from and you have a written lease, you will, almost without exception, need the permission of the landlord to transfer the lease.”

Andrew Rogerson

Preventative measures: examine lease terms and renew if necessary

“If your lease is close to expiring you definitely want to speak to the landlord as soon as possible, as you need to know their intentions. The landlord may have decided not to renew your lease, which will almost certainly damage the value of your business and force changes to your selling plans.

Please list in order of frequency how often sellers make the following mistakes when selling their business (To brokers)

“Review the date of expiry, whether the lease includes any options to renew as well as the terms. Can you, as the lessee, assign or sub-lease, and if so, are you comfortable with the legal responsibilities entailed?

“The seller invariably pays any renewal fee, but the seller could require the buyer to pay instead if they decide not to proceed once approved by the buyer.”

The possibility of wrangles over the lease is one reason to remain available through the process, if possible. “Take your holidays before or after putting the business on the market. Once it’s sold, then it’s time for that trip of a lifetime.”

Andrew Rogerson

Most Common Least Common1 2 3 4 5

Not allowing enough time to prepare their business for sale

21% 45% 18% 9% 7%

Overvaluing their business 35% 32% 25% 4% 4%Being too ready to sell to the first serious buyer

2% 9% 21% 32% 36%

Disclosing too much information, too early in process

2% 9% 17% 39% 33%

Exaggerating the business’s strengths or being dishonest about its weaknesses

7% 18% 27% 52% 23%

Finance and deal structure 45


12

41%vs46%

71%8%

15%

60%4%10%

Those interested in buying websites, which often require neither premises, staff nor even stock, were less likely to use bank finance than other buyers

Buying a website

Male buyers Female buyers

were planning to use angel investors against just 6% of those browsing for retailers for sale.

Having seen Instagram, a photo-sharing program with just 13 employees, sold for $1bn only 18 months after launch, investors see dotcoms as more likely to deliver a return on investment than traditional bricks-and-mortar operations

13%

More male buyers expecting to use personal savings

Male buyers twice as likely to use angel investment

Male buyers 50% more likely to use private equity

xhttp://websitebuyers

Finance and deal structure




“Be flexible regarding deal terms. Simply put, the more flexible you are regarding deal structure, the better a deal you can negotiate. While many entrepreneurs want an all-cash deal, being flexible and willing to entertain an array of compensation packages often leads to a higher total sale value.”

Perry Sheraw, executive vice president of eBusinessAppraisals.com and managing partner of Sugarmill Media LLC

Sale structure

Most small-business sales are asset sales, where the owner transfers certain assets but does not sell his or her corporate entity. Liabilities and legal claims are generally not included in the sale. If your business is a sole proprietorship or partnership, this is your only option. Selling the entire business is called a stock sale, which requires much more legal documentation. Transferring the liabilities as well as the assets – both known and unknown – a stock sale is only undertaken by corporations or LLCs.

Price and terms

The total amount paid for the business (and how the money is disbursed) is obviously one of the first negotiated items. Most business sales will include some element of owner financing, where the seller issues a loan to the buyer (see page 51 for more details). The down payment, interest, payments and term length must be clearly defined in advance.

Some transactions will include a deferred payment conditional on a specific performance goal. Called an earn-out, the seller is paid a percentage of future sales or profits, in addition to an up-front sale price, if pre-agreed targets are reached on schedule (see page 49 for more details).

Generally the seller can achieve a higher sale price by being flexible with the payment terms. An all-cash deal will usually result in a lower selling price than if the seller offers financing, for example.

Buyers generally feel more comfortable when the seller is willing to part-finance the deal. Repayment of the loan is contingent on the business’s continuing success, so the offer of owner finance represents an endorsement by the seller of both the buyer and the business.

How do you intend to fund the business purchase?

0 10 20 30 40 50 60

39%

10%

5%

11%

4%

2%

56%

4%

14%

19%

7%

Banks

Seller financing/earn-out/debt financing

Angel investors/business angels

Private equity

Government grants

Overdraft

Personal savings

Redundancy payoff

Friends and family

With cash from my current business

By remortgaging my home / refinancing my mortgage



Should the buyer use outside financing for most of the purchase price, the lender will be more inclined to provide the loan if the seller is willing to contribute a small amount of financing, usually 10% to 20% of the total price.

Most sellers want an all-cash deal, but you may be wise to offer some owner financing as you can achieve a better deal in the long term.

In some cases the business owner needs the entire proceeds for other purposes, which limits his flexibility. But if you plan to invest or save the proceeds then you may find that owner financing can give you a good return on your money.

Assets being transferred

Identify which assets will be transferred to the buyer and which will be omitted from the sale. For example, you may wish to retain a vehicle.

The offer must identify the amount of accounts receivable, inventory and furniture, fixtures & equipment (FF&E) included. While a stock sale generally includes assets and liabilities, the seller and buyer can exercise discretion to exclude certain assets or liabilities.

There are two asset types to consider. Tangible assets, such as furniture, fixtures, vehicles, equipment, inventory and real estate, have a physical existence.

Intangible assets include copyrights, trademarks, patents, accounts receivable, goodwill and agreements with suppliers, franchisors or franchisees and distributors.

The seller should also determine if the business name, its website, the web domain name and its telephone number will convey with the sale.

It is imperative to clearly itemize all assets included in the sale to prevent disputes later. Preparing a list of assets not included in the sale will also help avoid future misunderstandings.

Liabilities being assumed

Determine whether the buyer will be responsible for any leased equipment such as copiers or credit card machines. It also must be clear whether the accounts payable due at closing will be paid by the current owner or assumed by the buyer.

In most business sales, accounts receivable and accounts payable are either both retained by the existing owner or both transferred over to the buyer.

Seller warranties

Warranties issued by the seller will concern the condition of the business or its assets. The seller may also agree to resolve any unexpected liabilities.

Seller warranties protect the buyer from events unforeseen at the time of the sale. The seller is effectively stating: “I told you everything I know. Everything you were told is true and accurate to the best of my knowledge and you know everything that we should have known.”

Buyer warranties

Issued from buyer to seller, buyer warranties are especially important where the seller provides owner financing. The buyer may warranty to keep the equipment in working order, for example, or agree not to sell or dispose of any equipment without the previous owner’s approval.

This is especially important if the company’s assets are used as security for owner financing. The buyer may also agree to provide the former owner with financial statements until the financing is paid in full.

Ongoing support after the sale

A transition period is often agreed whereby the owner transfers the business in an orderly fashion and provides some training to the incoming owner. This is usually provided at no cost to the buyer for a specified length of time. Depending on the complexity of the business, the duration of this transition period may last anywhere from one week to six months. (See page 55 for more details).

Non-compete agreements

In almost every business sale, the buyer will require the seller to sign a non-compete agreement, which prohibits the previous owner from establishing or purchasing a similar business within a specific geographic area for a defined period of time.

It is imperative that the agreement clearly define the type of business being prohibited, defining products and services which closely mirror those of the business being sold.

The geographic section of the non-compete agreement should encompass an area in which the company conducts business. For example, if you are selling a retailer, an area with a 25 miles radius would be more realistic than the entire



state because people rarely travel further than 25 miles to buy retail products.

This geographic area, which must be reasonable to be enforceable, must be similar to the market area of the business being sold. The agreement term should also be reasonable and allow the new owner to become established without the threat of the former owner competing with him for a given period of time. Most non-compete agreements last for three to five years.

The agreement may also include a non-solicitation clause. This clause prohibits the former owner from soliciting the company’s employees or customers.

Purchase price allocation

When a business transfers as an asset sale (which most small- and medium-sized ones do), buyers and sellers must determine the value of the individual assets being transferred. The sum total of those assets will equal the purchase price.

This is important as certain types of assets are treated differently for tax purposes. Some assets, such as inventory and equipment, are considered ‘hard’ – i.e., tangible assets you can see and physically touch.

Intangible assets are just as important. In fact, the purchase price of many businesses is composed mainly of intangible assets (such as goodwill value or the value of a non-compete covenant).

When an offer is extended, the allocation of purchase price components is generally unknown and determined later in the process. The buyer and seller will reach an agreement on the final allocation. We suggest you include language such as that shown in the example Offer to Purchase agreement shown below:

Buyer and seller shall, prior to closing, agree upon an allocation of the purchase price. Buyer and seller agree that such allocation may significantly impact on their tax liability and agree to rely upon solely themselves and their legal or accounting advisors regarding said decision. Unless specifically agreed to the contrary, buyer and seller shall each bear their own tax consequences resulting from their agreed allocation.

The buyer generally establishes the allocation (breakdown) of the purchase price subject to the seller’s approval. The exact allocation is important to both parties. For the buyer, it will determine how quickly those assets are depreciated or amortized and therefore the ongoing taxable income of the business on an annual basis. The

seller, meanwhile, will recapture some of these write-offs and therefore the allocation will impact his or her tax liability upon the sale. Please note, sales tax may be owed to the state, if applicable, for the value of the FF&E sold.

Case studiesHow was the deal structured?


“It was a cash sale no finance needed.”


“My deal was awesome – all cash, with a one-year commitment to stay on as a consultant.”


“The buyer obtained an SBA loan.”


“Three guys bought the business together and paid for it with cash.”


“Cash only deal. In our business there is no finance, it’s a low margin business.”


“Had a sale gone through, we would be very easy to work with for payment.”

Earn-outs 49


13Earn-outs

An earn-out makes payment of part of the sale contingent on future performance. For example, the buyer might agree to pay $1m up front in cash and a further $1m over five years if financial benchmarks, such as sales or profit targets, are met. If the targets are missed, then no additional payment is due and the initial $1m payment stands as the final sale price.

Usually used when the buyer’s valuation falls substantially short of the seller’s, earn-outs can help vendors boost their long-term returns, particularly during a downturn when buyers are more parsimonious. Earn-outs are typically repaid over 3-5 years, although the repayment period could be as short as a few months. Surveys have shown that private companies regularly take between 40% and 45% of the total price through an earn-out agreement.

“Earn-outs can create a win-win. They get deals done by overcoming the spread between bid and asking prices. However, they add complexity and risk if not structured and implemented properly. The concept is simple, but documenting and executing an earn-out is far more difficult. Sellers will require audit rights and unrestricted access to financial reporting.”

Douglas Baumwall, COO at Collins & Collins Investments, Miami

The advantage to buyers of earn-outs is obvious: they’re agreeing to payment for actual sales performance or profitability rather than nebulous ‘potential’, which can often amount to nothing. But if buyers can squander money on unrealized potential, then the inverse can be true of sellers.

When a business is valued solely according to past performance – as they invariably, and rightly, are – then the seller reaps no rewards should profits subsequently soar because of processes

When earn-outS Go rIGht:

In early 2013 Seattle-based caller ID pioneer Cequint was sued by former shareholders who claimed they had been “unlawfully deprived” of $62.5m worth of earn-out payments. The plaintiffs argued that TNS, which paid $50m upfront cash with a further $62.5m linked to future performance, had weakened revenues by consolidating the HR and finance departments and “stripping Cequint of its entire leadership team.”

Heinz made an early earn-out payment of $60m – 20% more than the original provision – in January 2013 after Chinese soy sauce manufacturer Foodstar met its performance targets ahead of schedule. Heinz paid an initial $165m to Transpac Industrial Holdings Inc in 2010, with the earn-out originally due in July 2014.

When earn-outS Go WronG:

Earn-outs 50


and innovations instituted by the seller. An earn-out means a seller can exit a business before it has realized its full potential and still draw some benefit when his plans come to fruition.

But, of course, there are no guarantees. After all, approximately three quarters of mergers and acquisitions fall short of stated expectations. However much faith you have in the business, you must negotiate an earn-out on the basis that you may never get the money.

Because even though you’ll probably be involved in the business beyond the sale, you’ll no longer be the decision-maker. Urge an alternative approach all you like, but the buyer can ignore your advice and embark on a doomed strategy if they want. You will only be able to stand by and watch in frustration as sales targets are missed and your earn-out fails to materialize. Suffice to say, get the highest down payment you can.

Ensure that your agreement does not permit the buyer to embark on a spending binge to suppress earnings should you agree an earn-out based on net profit.

If your company has a strong track record of hitting or exceeding performance forecasts then you’re in a strong negotiating position for an earn-out.

“The earn-out clause must be clear and easy to understand. The formula must be precise and use easy-to-measure metrics. It’s a good idea to include hypothetical examples to avoid potential disputes for the earn-out clause to address possibilities which may not be obvious at closing. For example, what happens to the earn-out when the business is resold, before the end of the earn-out term?”

Douglas Baumwall

Seller finance 51


14Seller finance

Seller finance 52


What is seller financing?

Also called owner or vendor financing, seller financing is where the seller plays the role of a bank and lends part of the sale price to the buyer.

The loan terms, which are documented in a ‘loan note’ (also known as a promissory or carry-back note), closely mirror those of a conventional business loan: the buyer pays a down payment and pays the rest, plus interest, in installments on pre-agreed dates over a fixed period.

The business itself usually serves as collateral. Should the buyer fail to meet his payments then the buyer wrests back control of the business.

As with a bank loan, the size of the down payment, level of interest rates and repayment duration vary depending on how both parties perceive the risk they’re shouldering.

How seller finance can help you sell – and at a higher price

“In America, 70% of businesses for sale don’t sell. And the reasons are the price expected is too high, the buyer can’t raise the money – or seller financing is not taken up as an option.”

Anonymous broker, writing in the 2012 BusinessesForSale.com survey

Offering buyers the option to defer part of the consideration - i.e. pay later:

“[Seller finance] could result in a better offer. It also makes it easier to attract more and better buyers to the deal.”

Tony Calvacca, partner at New York Business Brokerage Inc

It builds trust

Agree a loan note as part of the deal and you are implicitly endorsing the buyer and your business. Because if the business subsequently flounders, whether through the deficiencies of the business or its new owner, the buyer will struggle to meet repayments. With a clear vested interest in the ongoing success of the business, the provision of seller finance is an act of good faith that tells the buyer: “You can trust me when I say the business is robust and I believe you have the right skills and experience to run it successfully.”

How much more attractive would a business for sale be if its owner offered to take a down-payment and accept the rest in instalments?

Thus emboldened, the buyer might be willing to pay a higher price than they would have.

A loan note also incentivizes the seller to work hard should he or she agree to help with the post-sale transition.

“I had a client buying a business with a down payment and the rest was on a monthly basis over five years. He was six months into the deal and some of the customers were not paying quickly enough. The buyer then contacted the seller and asked him what he should do. So the seller made a couple of phone calls to the customers and bingo, it was all OK again. So from a buyer’s perspective, it is a benefit as the seller is morally locked in, and has a selfish interest to make it work over ‘X’ number of years.”

Tony Calvacca

It fills a funding gap left by risk-averse banks

Offering seller finance as an option lowers the threshold of what buyers need to raise from their own savings and from banks, thus widening the pool of buyers who can afford your business.

Much more attractive 58%

Slightly more attractive 27%

Would make no difference 13%

Less attractive 2%




Less attractive 2%

Seller finance 53


A willingness to accept part of the sale price in tranches is particularly helpful if your business is seen as high risk by banks and buyers alike, for example if the balance sheet is unhealthy or you operate in a sector notorious for high closure rates and tight margins.

Of course, you must assess the risk yourself; do you have confidence in both the buyer and business? Perhaps you can see strengths in the business that buyers and banks can’t.

In which sectors is seller finance used most extensively?

“There’s a direct correlation between the size of the transaction and whether it will be seller financed or not. Because most small retail, main street businesses take a lot of cash, they’ll typically not show many sales on their tax returns, so their financials cannot be used to substantiate lending. Therefore a large majority are 100% seller financed because there’s just no alternative.

“If you’re talking about larger transactions, upper main street or low mid-market deals, then there is almost always some degree of seller participation, but they’re usually not totally seller financed.

“Owner financing is also helpful for businesses whose value derives more from intangibles, such as brand, goodwill, client relationships, and the knowledge and skill of staff, than physical assets such as the premises or equipment.”

“Professional practices, such as dental practices, CPA firms, medical practices and insurance agencies lend themselves very well to seller financing. Many lenders are very eager to lend to those types of practices because they are viewed as much less risky.

“If you have a professional with a clearly defined skill set, so he’s prepared to make that practice successful, then, the seller will expect, and reasonable should expect, that the vast majority of the deal is not going to be financed by the seller, and that’s a positive with those industries.”

Tony Calvacca

The specter of default looms over sellers for months after a loan note is issued; their financial

interest does not end when they hand over the keys to the premises.

“There’s personal disruption in a seller’s life if they need to go back and rehabilitate the business, especially if they’ve moved out of state. It can take a long time to remarket and resell it.”

Tony Calvacca

Waiting for some of your money also reduces your spending power in the short term and could delay plans to invest on your next venture.The delay can be negated – but it comes at a price.

“There are companies out there – we’ve been prospected by quite a few – that purchase seller’s notes. It’s an expensive proposition, but for someone who wants to get their hands on a chunk of cash to make an aggressive acquisition it may make sense to do that.”

Tony Calvacca

Seller protection

“It is in your best interests to obtain collateral for any loan you provide to the buyer in addition to the company’s assets. Buyers may have other possessions, real estate investments or personal property that they can use as additional security.

“Obtain a personal guarantee from the buyer and his spouse. You may also require that the buyer purchases a life insurance policy, listing you as its beneficiary, to ensure the loan is paid in full if the buyer meets with an untimely death.

“Please not that if the buyer uses outside financing for most of the purchase price, any seller finance will likely be of secondary importance in terms of security. Most lenders will require the seller to subordinate his or her loan. We will provide you with information on how to qualify a buyer and make an informed credit decision later in this book.”


Seller finance 54


Long-term returns

The seller is also compensated for the delay and risk undertaken. Let’s say a promissory note is agreed at 8% over nine years on a $200k business: the seller will ultimately receive $400k and double their money. Even accounting for inflation, that’s a decent return.

“And there are tax advantages. Because the seller is not taking one lump sum payment. They’re going to leverage that for tax purposes by taking payments over a longer period of time.”

Tony Calvacca

Incorporating seller finance into your marketing

“Typically, the broker and/or the seller themselves will, if they’re knowledgeable, structure the terms prior to marketing the business. If the terms are attractive and spelt out clearly in the marketing materials, it will dramatically increase the response that you get.

“When sellers tell brokers they want all cash for their business, if a broker points out a realistic expectation early on that they shouldn’t expect to get all cash, it makes it easier down the road.”

Tony Calvacca

For all the risk involved, seller finance is an invaluable tool in business sales.

“Seller finance lends a tremendous amount of credibility to the transaction. The buyer is going to be comfortable knowing that the seller has confidence that the business is going to be income producing and the buyer is going to be capable of repaying those notes. The buyers feel much more comfortable when the seller is holding at least something. Seller financing simply makes the deal easier to do.”

Tony Calvacca

Advising the buyer after selling your business 55


15Advising the buyer after selling your business

Sale agreements often stipulate the vendor’s continued employment by the business beyond the sale to oversee the transition to a new owner.

For a fixed period agreed in advance, the seller will either be hired as an independent consultant, formalized through a consulting agreement, or an employee performing a specific function, for example sales or product design.

“This is usually done at no cost to the buyer for a specified length of time. The amount of time is determined by the complexity of the business and may be anywhere from one week to six months.”


As a consultant, the outgoing owner should be available to provide advice on any aspect of running the business. Depending on the nature of the business and the areas where the new owner requests help, the seller might train the incoming owner in how to use systems, introduce them to clients and suppliers and provide strategic advice.

Sectors and business types

Post-sale assistance is particularly important where hands-on owners who play a significant role in the day-today functioning of the business.

Perhaps the vendor is a marketer whose charisma, expertise and contacts was responsible for attracting and retaining a significant proportion of his agency’s client roster.

Or it could be a software company with esoteric systems whose former proprietor was instrumental in developing its most popular products.

How much more attractive would a business for sale be if its owner was available for advice and training after the the business has been sold?




Less attractive 2%

“The seller may have to stay on if there’s some specialty – say you’re buying a contractor and you need a contractor’s license, which the buyer needs two years’ experience to obtain.Same thing with a very specialized personal service. For example, we sold a psychology practice one time. If a patient walked in and had a new psychologist, it’s pretty upsetting, so the previous owner stayed on for three months and they transitioned people, and for the most part people stayed. Those kind of things ensure that people stay.”


Advising the buyer after selling your business 56


It’s not just about the business’ dependence on the vendor. Post-sale consultancy can also reassure apprehensive buyers with limited or non-existent experience of running businesses or operating in that sector. (After all, a huge proportion of purchasers are first-time buyers).

A buyer whose credentials to run the business pale in comparison to those of the outgoing owner may struggle to win the respect of his or her new staff. The continuing presence of the seller can reassure staff, customers and the new owner and burnish the new owner’s authority.

When things go wrong

The lingering presence of the previous proprietor can of course have the opposite effect and undermine the new owner. It is worth stating the obvious at this point: ownership has now passed to the buyer, who now calls the shots. Your role should be as disinterested advisor. Which isn’t always easy if the new owner is dismantling parts of the businesses you held dear.

“There may be a great deal of emotion and anxiety during the handover for both the seller and buyer. It is normal for the seller to have reservations about parting with the business he has spent so many hours building. After significant investment in time and money he or she is now turning it over to someone else and walking away or staying around with no decision-making authority. Imagine watching the new owner make mistakes that you might have made years earlier. For the buyer, typical second thoughts about spending a lot of his net worth on a business, for which he will be ultimately responsible, can be a daunting feeling.”

Roger Murphy

To minimize the potential for ill feeling, it is imperative for both parties to agree in advance the specific nature of, and limits to, the seller’s role.

“It is important that the exact duties, length of term and compensation are clearly defined.”

Roger Murphy

Case studyAndy Meng

Andy still works as a part-time consultant in the web-design business he sold 12 months ago. He recognized the necessity of an advisory arrangement – but also the potential for tension:

“The new buyer wanted me to stay because he was taking over a business with a whole set of clients based on relationships that my wife and I had developed over many years. So we just needed passdown on that. And he needed it to understand the employees that were coming with the sale.”

Andy alighted on a simple solution:

“One of the reasons it works well I think is that I don’t work in the office any more. I work out of my house, primarily doing sales. If I were in the office there’d be a bit more tension because I would want to run the business or question decisions he was making, and that’s not good and I realized that. So I really forced myself to step out and say ‘hey, you run the business, it’s yours now, and I’ll support you in this role’, and that’s worked really well for us.”

What are you up to now? 57


16

What are you up to now? 57


16Case studiesWhat are you up to now?


“We’ve jumped into a franchise, Cinnabon, a cinnamon roll concept. We’ve opened four locations in less than a year, so we’ve expanded quite a bit.

“And we’ve also bought an Auntie Anne’s pretzel franchise.

“One of the locations is already valued at $1m from an investment of $300k.”

“We did not go through a bank but we did go through private financing, so the cash from the previous business was not enough to buy the previous stores that we opened.

“The long-term goal is to keep expanding. That’s why we moved into this industry because it’s not cash-based and the inventory is manageable.”


“I actually still work for the new owner. I really enjoyed the sales aspect of the business – meeting with clients, putting together potential solutions, etc – so I continued in that role. I’m considered the business development manager and I primarily do sales now so I work part-time.

“It’s part-time: I’m probably doing 20-30 hours a week right now, which is freeing me up to do other things. It’s about half of what I was doing before.

“Originally I just agreed to work for the new owner for a limited, one-year transition period but our transition went so well that it has become indefinite. The new owner and I get on well and I’ll continue to do this for as long as he will have me.”

“Our big plan right now is we’re building our own house, which takes up a lot of time, there’s a lot of decisions to be made and we spend a lot of time with the builders, so that’s keeping us busy through this year.

“Then after that the goal was to keep working part-time, do some more travelling. It’s also given me the opportunity to do some voluntary work, so I’m working with some non-profits here locally that I believe in and support and donating time on boards and volunteer positions.”

Sheryl Best has yet to find a buyer for Las-Vegas based coupons website Coupons 4 Humanity:

“I’m still running two other successful businesses, Corporation Makers, Inc and Ballroom for Schools, LLC

“Although we have not sold yet, we will be relisting the company soon.”


“I am currently working as a senior software developer and also doing an MBA from Texas A&M. I’m looking for business ventures here in Dallas but I haven’t found anything really exciting yet. Dallas is where I want to settle down for a very long time – it’s a very nice place to live.”


“I have started a new company with some new patents that I developed and designed. I have an offer for one of my patents right now.”


“I’m a business broker.”

Conclusion 58


Conclusion

“Make sure you have documentation relating to the values of the company. Know your business from A-Z and be confident in what you say. Be sure it’s something you want to do.“Have in your mind what you are going to do next and be real so the buyer feels comfortable. Market to people you know first who would make a good fit. Make it real for them and you. You might have to carry on some involvement.”

Steve Price, who sold Kamehameha Environmental, an environmental/freight company in Hawaii

Drawing on the experience of several high-profile business-sales intermediaries, this guide should reassure as much as educate buyers.

Hopefully it has eased any anxiety felt about what is, after all, an often complex and daunting process.

But as comprehensive as this guide is, it is still advisable to seek advice elsewhere, from an accountant, attorney and/or business broker. We could never cover every nuance of the sales process and the peculiarities to selling every type and size of business.

“Lenders, business brokers, franchisors (if applicable), lawyers, accountants and even family members have a role to play. Selling a business is not easy at the best of times.”

Andrew Rogerson

Should you decide to appoint a broker, this guide can certainly help you choose the right one. Once hired, we can also help you identify whether they’re doing a good job.

For those who go it alone – and many do – this guide can serve as an invaluable guide to the sales process. By all means, however, read from other sources too!

“The closing is the best part of the business-transfer process. This is payday for the seller as he reaches the final step involved in selling his company. Whether you’re retiring or setting up another venture, this is where you finally get just reward for the years of effort, inspiration and risk.”


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IndexAaccountant 15, 17, 19accounts payable 47accounts receivable 47acquisition process 39administrative best practice 39Advertising

advertising budget 16business listing system 13direct mail campaigns, 13print advertising 13trade publications 13websites 13

adviser 21after the sale 47Anecdotal 27appraisers 13asking price 15, 20asset sales 46Assets being transferred 47attorneys 13, 15Avoiding disruption 39–40

Bbank loan 52Best, Sheryl 8, 34books 16, 19, 20broker 12, 15

costs of a broker 15Business Brokerage Press 16Business Listing Information Sheet 36business transfer process 13Buyers 30–34

Corporate Buyers 32Financial 33Individuals 32Strategic Buyers 32

Buyer warranties 47–48

CCagnetta, Andrew 19, 33, 37, 38, 40Calvacca, Tony 17, 52, 53capital 37Case studies 8, 21, 34, 35, 48, 56, 57cash flow 9, 31, 33CBI (Certified Business Intermediary) 16closing attorney 15closing process 15collapse of a business sale 41commission 13Communication 14Competitors 33confidentiality 13, 15, 37–38

confidentiality agreement 13, 37Congress 9Connections 17Cooper, Glen 16

Coupons 4 Humanity LLC 8, 34coupons website 29, 34CPA firms 53CPAs 13customers 15

Dday-to-day operation 39deal structure 27, 45–48default 53delaying my exit 9dental practices 53dishonesty 20Divorce 8, 10documentation 20, 22

business permit 20contracts 20delivery of documents 42financial statements 20inventory 23leases 20legal documentation 20minutes 20papers 20

Ducey, Ken 10, 13, 23, 24, 27due diligence 20, 43

Eearnings 23earn-out 46Earn-outs 49–50Economy

credit crunch 8Downturn 8Economic cycle 8, 9falling market 9recession 8Rising market 9

emotionally attached 13, 14employees 31energy

shale gas bonanza 9energy company 9, 22, 34Enron 29equipment 20, 47, 48Ernst & Young 29escrow company 15estate agents 12Exit strategy 19

FFacebook 24, 29Family

Children 9, 10fee 15

Up-front frees 17final agreements 39financial advisors 21financial statements 33former clients 16

60


FranchiseFranchise-based 9

GGoldman Sachs 29goodwill 23GroupOn 29Growth 24

HHoffman, Jim 39how to close the deal 41–44

IIllness 8, 9

health issues 15Medical Problems 10

income 19, 23, 32, 48, 54incompetence 20inexperienced buyer 14inexperienced seller 14Informing employees 21Infront Webworks 21inheritance 10Instagram 24insurance agencies 53International Business Brokers Association 16inventory 47, 48

JJP Morgan 29

KKamehameha Environmental 9, 34

Llandlord 44lawyers 17lease terms 44legal documentation 12legal team 21lender 13, 15lenders 13Leverage 31Liabilities 47liquidation 23Loftin-Winkel, Katrina 9, 20, 21, 34Long-term returns 54lying 43

MMaine Business Broker’s Network 16manufacturing 9marketing 12, 13, 23, 33, 35–36, 54maximize the value 19Illness 8medical practices 53Meng, Andy 8, 21, 34, 35, 56motel 9, 21, 34motivation 9Murdoch, Rupert 29

Murphy, Roger 9, 13, 35, 37, 39, 45, 53, 56MySpace 29

NNegotiation 14, 20

negotiating 15negotiation process 14

new owner 9News Corp 29Non-compete agreements 47non-solicitation clause. 48notifying employees 15

OOngoing support 47overvaluation 13, 17, 25owner financing 46owner-operated 9

PPaperwork 20Parikh, Shreeraj 9, 22, 34, 35Parker, Richard 14, 17, 42payment terms 46Poor communication 42potential buyers 13pregnant 28premises 20, 23price 31Price and terms 46Price, Steve 9, 22, 34‘private’ sellers 13profit 23, 24, 29, 35, 49, 50project manager 15promissory note 54purchase price components 48

Qqualified buyer 13quality of staff 23

Rreal estate 17, 47real estate license 16records 19Relocating 8restaurant 8, 34, 35retail 24Retirement 8, 27revenues 12Risk 24

Vulnerability 24Rogerson, Andrew 8, 9, 12, 15, 19, 20, 24, 26, 27, 28, 41, 42, 44

Ssales pitch 17Sale structure 46Sand N Sage Lodge 9, 21, 34Sarbanes-Oxley Act 29seller finance 17

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Seller protection 53Seller warranties 47Serendipity 27shares 9Sheraw, Perry 19, 20, 21, 46small-business 46Specific Media 29staff 12, 20stock 12Store

cigar shop 9, 22convenience store 9, 22, 35

succession plan 21suspicion 17

TTaleb, Nassim Nicholas 26Tangible assets 47, 48tax advantages 54tax experts. 13tax returns 20, 26terms 15The Black Swan: The Impact of the Highly Improbable 26The Confidential Business Profile 36The Front Porch Grill 8, 22, 34, 35‘tire kicker’ 37, 43Training 31trust 14turnover 23

Uunrealistic expectations 37Unsolicited offers 10urgent sale 8

Vvacation home 10valuation 12, 13, 17, 23, 26, 27

Ballpark valuation 19independent valuation 10, 19, 27profit 23sale value 19, 20valuation models 23

Asset-based valuation 23Discounted cash flow 24Entry valuation 23Multiplier of earnings 23Rule of thumb 24Vanjani, Ravi 8, 22, 34, 35

Wweb design 8, 21, 34, 35West, Tom 16What is seller financing? 52, 52–54what my business is worth 15When things go wrong 56

XXoma 29

YYahoo 29

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