Using a Deferred Sales Trust in a Business Transaction

Deferred Sales TrustThe incoming presidential administration has indicated its desire to tax certain earners’ capital gains at the same rate as their personal earnings.  That has led to us getting more questions here at Apex about ways to reduce exposure to capital gains.  One of these ways is called a deferred sales trust.

What is a Deferred Sales Trust?

Simply put, this is a vehicle one can use to defer capital gains taxes.  This is something that must be set up prior to a sale and, unlike the well known 1031 Exchange which is for real estate transactions, a deferred sales trust does not impose strict, short-term time limits on your proceeds.

How Does it Work?

The trust buys the business from the seller (this can be set up in a contract to be concurrent with the purchase from a buyer).  The seller can set up a contract that allows the trust to pay for the business over time.  In a sense, it’s seller financing…for yourself.  As you withdraw from the trust (on a timetable that you set up, that can be modified) then you will be taxed at that time, and only on those amounts.  Even better?  Those funds can be used to make investments which are not subject to the capital gains that you incurred on the original transaction.

Some conditions include:

  • A third party must be the trustee
  • The trustee can invest those funds in new investments
  • The trustee is responsible for making your disbursements or making modifications to the disbursement schedule
  • Capital gains are to be paid on any principal amount the seller receives from the installment payments.  As we noted above, the trust can make investments and earn income and hence could also be “saddled” with non-taxable (to you) interest on your payments.

What’s the Catch?

We’ve always said that it’s key to not fall afoul of the IRS.  You shouldn’t look at this vehicle solely as a way to “avoid capital gains.”  You won’t be able to.  All you can do is adjust the time of paying those taxes to your choosing, but that also means not taking all the gains from your sale at once.  If getting your proceeds in an installment fashion suits your lifestyle, this might be an ideal way to go.  You can also negotiate the payment amounts, so if you need a lump sum up front before moving to smaller payments, that’s possible.

The main “catch” involved is picking the right trustee.  This isn’t just because this person will be in charge of the proceeds of possibly the largest transaction of your life, but because he/she will also oversee investing that money.  Remember that capital-gains-free earning of new income via investments is a major benefit of this vehicle, so as much as you might want to just ask a family member to “help you with this one thing” you’re probably going to need to bring in a professional who can help you optimize your investments.

Speaking of professionals, that’s who you’re going to want to consult to help you examine a deferred sales trust: a lawyer in consultation with your financial team.  This sort of vehicle isn’t for everyone, but as tax conditions change in Washington, people should examine their options and be prepared to have different ways to execute their transaction, should they wish to do so.

We don’t create trusts at Apex, but we know great people who do.  If you need a referral, give us a call and we’ll connect you.

Three Reasons We Might Not Take Your Business Listing

Three reasons we might not take your business listing.The truth is that we are always looking to add to our inventory of listings. We want to give potential buyers as many choices as possible. It reassures them that they are choosing from the best of several opportunities, not just fighting for the scraps of a handful of listings. But that doesn’t mean we’ll take every listing that comes our way. In fact, sometimes we have to simply decline to list certain businesses. In this article we’ll discuss the three biggest reasons why we might not take your business listing.

No Clean Books

Serious business owners don’t just have clean books and regular access to intelligible financial statements, they actively use them in order to understand the health of their business. Clean books mean not just putting charges and expenses into some catch-all category, but being as specific as possible as often as possible, so that you can see changes month-to-month, quarter-to-quarter, year-to-year.  

Clean books are inextricably linked to being on good terms with the IRS.  You should have no serious tax issues nor should you be playing games in order to evade taxes.  While the IRS is the immediate issue for those who don’t take regular payment of taxes seriously, no buyer feels comfortable getting into a transaction with someone who feels comfortable trying to pull one over on Uncle Sam.  

No Processes

Almost every month in these pages we will talk about a variation of this familiar theme: have systems and processes in place. If you’re building a business to sell, it needs to be able to not just survive without you, but thrive without you. A good rule of thumb is 30 days. If your business can survive without you for 30 days, then you have something that you can probably sell. If it can’t, you probably own a job.

Every buyer dreams of being handed some kind of manual that explains everything about how the business runs. If you want to sell your business someday, you need to be writing that manual now.

Bad Attitude

There are many ways that sellers can have poor attitudes, but the two we confront most often are: 

  • Some fixed notion about what the business is worth, tied to emotions instead of hard financial facts.  Valuations, not opinions, help determine what a business is worth.  The market then determines how true that valuation is.  Neither the valuation nor the market cares about what you think the business is worth.  
  • Slowness or obfuscation when it comes to key documents or key questions we have about the business.  The way that you work with your broker is a good indicator of how you’re going to work with a buyer.  If you can’t (or won’t) answer important questions or get us key documents to help us understand your business and decide whether we will accept your listing, there’s very little chance you’re going to make it through due diligence, when the both patience and timely responses get you to the finish line.

Any one of these reasons is enough for us to refuse a listing, but the good news is that each of them can be turned around, with a little self-awareness and a lot of sincere effort.  If you need help with addressing these problems, don’t hesitate to contact us!

Cash Versus Accrual Accounting: Which to Use?

Cash Vs Accrual Accounting: Which to Use?Unless you actually run an accountancy or bookkeeping business, accounting isn’t usually at the top of a business owner’s mind. But if you don’t understand your books, you don’t understand your business, and the choice between cash and accrual accounting is a choice about how you choose to view your business, so it’s an important difference to know about (and make an informed decision on).

Cash Accounting

This is the type of accounting that is used by many small businesses and for personal finance. It is called “cash” but obviously deals with whatever forms of payment you take.  You enter revenues when you receive revenues and you enter expenses when you pay expenses.  

Pros

  • The process is simpler and easier, both for you and for your accountant
  • You get an excellent short-term, day-to-day glance at your business
  • Your bank balance bears resemblance to your bookkeeping

Cons

  • You cannot make long-term decisions based on this type of accounting
  • These books can sometimes provide an inaccurate picture of the company
    • E.g. you could have a very large amount of cash on hand but have payables that exceed all of that amount and then some

Accrual Accounting

This is the opposite of cash accounting. You book revenues when you have an agreement in place (even if you have not been paid) and you book expenses when they are incurred (not when you have paid them). 

Examples:

  1. A client signs up for one of your products and services in March, but they will take delivery in April, hence they may not pay you until then or later. But in accrual accounting you book that revenue in March, not April.
  2. A vendor sends you an invoice in June. It is due in July. In accrual accounting you book the expense in June.

Pros

  • This is the type of accounting that investors want to see because it gives a better sense of the long-term performance of the company
  • It’s more accurate (and GAAP recommended), because you have a better view of the profitability of the company over an entire year

Cons

  • Because you have to record revenue before actually receiving it, cash flow is tracked separately
  • This type of accounting is significantly more expensive in time and money
  • You don’t have a short-term picture of your business

The Choice

Many businesses can choose which type of accounting to use, but some can’t.  

  1. If you stock items to sell to the public and do more than $1M/year in revenue, you have to use accrual accounting
  2. If you do more than $25M/year in revenue, the IRS requires you to use accrual accounting 

If you do want to switch over from cash to accrual you can’t just decide to do it, you have to ask permission of the IRS via Form 3115, and if they approve you, you have to stick to that choice for the whole year. No changing mid-stream.

Small businesses without a lot of cash on hand and are primarily B2C will often choose cash accounting, simply for the ease of it. Businesses that keep a large inventory or don’t get paid quickly will often choose accrual accounting, simply because it makes more sense.

This is ultimately a decision you should make with the advice (and consent?) of your accountant. He/she knows your business, knows its cash flows, but most importantly, knows you, how you deal with different financial statements, and what your long term goals with the business are. Armed with that information, it’s easy to figure out whether your business should be using cash or accrual accounting.

If you want us to take a look at your books to see whether you’re in a good position to sell, we’re always happy to not just look, but offer suggestions on what you can improve and clean up to get ready for a future sale. Give us a call today.

Best Practices for Marketing a Business for Sale

Business for SaleIn our Day in the Life article, we gave you a sense of what we as brokers might do on any given day to move the ball forward on transactions. In this article we wanted to get more specific on a few things to keep in mind when you have a business for sale.

Confidentiality

There are several parties you want to keep a sale confidential from until it’s complete, including:

  • Customers
  • Employees
  • Competition
  • Creditors

Employees might seem like a fairly obvious one. You don’t want them worrying about job security and spending time applying for new jobs instead of keeping the business going. The same is true of your customers. They don’t know what will happen and may worry about how a sale will change your product or service and postpone doing business with you (or go with a competitor, who will then also find out) if they learn that you are selling your business.

You also don’t want to let creditors know. This isn’t because everyone you do business with is necessarily interested in going around town and spreading the news, but because they may also deal with some of your competitors and a casual comment can lead to word getting out much quicker than you expected.  

Keep the fact that your business is for sale known only to a selected group of trusted people.  Two basic rules of the road are: Be sure that buyers sign a NDA and that the ad used to market your business sufficiently shelters its name and location.

Targeting Likely Buyers

While it would be nice for the perfect buyer to just show up with some money, listing a business for sale isn’t that easy. You should be thinking about the profile of likely buyers so we can target them better.

Some questions to start narrowing the profile down include:

  • Is your business appealing to any buyer or a specific type of buyer?
  • Is a buyer looking for a business of your size or in your specific industry?
  • Is your buyer an individual? Another company (a competitor or one that wants to expand into your industry)?
  • Does your business require any special qualifications, licensing or certifications to own or operate?
  • Is your potential buyer looking to be an owner-operator or an absentee owner?  How would your business fit either model?

Answering these questions will give you a specific buyer profile.  You can then go to where those types of buyers are in order to have a more effective search.

Curb Appeal

When you get ready to sell a house, unless you’re selling it as a fixer-upper (not a great look in the business for sale world), you want to make it look its best. The same is true when you want to sell a business. There are things you tolerate when it’s your business that a new owner might find unappealing (and which can lead them to find the business less valuable).

These could be things as simple as peeling paint, squeaking door hinges, or out-of-order toilets. You and your employees may have gotten used to such things and may not even notice (or care) anymore, but a buyer with fresh eyes will. As you’re getting ready to take your business to market, these basic things need to be dealt with.

You should also be dealing with less visible things, like any ongoing disputes, or payable accounts that are not up to date, or software or infrastructure upgrades that are going to be expected by a potential buyer. All of these things require money to fix, but the shinier profile you’ll have as a result of making these tweaks will definitely lead to a better bargaining position when it comes to negotiating deal points later on in the process.

More Tips?

Every single week, our brokers meet to discuss the newest businesses for sale. While we keep our best practices in the forefront of how we market, we are also always sharing information with each other on how to improve the marketing for any given business. Put our expertise to work for you. Give us a call.

Selling a Franchise: Is Selling It Back to the Franchisor Possible?

While a person often buys into a franchise business with the hope of growing the location to sell one day, or possibly even to get into multiple units, there are times when a franchisee may have to sell the franchise back to the franchisor. In this article we’ll talk about this circumstance and what you need to keep in mind if you do so.

Part of the Deal Anyway

Selling a FranchiseYou will find that even in the best-case scenarios, in which you have decided to sell the business at a premium to an outside buyer, that the franchisor has the right of first refusal built into the franchise agreement they have with you. Simply put, that means that all they have to do is match the price that you have under contract with a potential and you will have to sell to them instead.

You can imagine that if you do have this clause in your franchise agreement it will not be particularly exciting for a potential buyer you are selling a franchise to to find out that they could be cut out at the last minute by the franchisor.

Franchisors do this to keep their options open as well: they might like to expand the footprint of their company-owned stores and buying a franchise back from a franchisee is one of the easiest ways to accomplish this. Part of this strategy also involves putting time limits on each franchise agreement and as an agreement comes to an end a buyback option may be in play also.  

Franchisors also keep a waiting list of those who would like to buy an existing location (and are willing to pay a premium to do so) rather than start one from scratch, in which case they can (and do) charge a referral fee to you if they end up giving you a buyer instead of you finding one yourself.

Even if the franchisor doesn’t decide to exercise the right of first refusal option, and they do accept the buyer you have found, they can still charge a transfer fee, which is also usually stipulated in the franchise agreement.  Furthermore, the buyer will still need to meet the then-current new franchisee qualifications (again, stipulated in your franchise agreement…see a pattern?).

Sometimes It Is the Best Option

There are times when selling a franchise to an outside buyer isn’t a real option.  The franchisee might simply be tired, not having realized how much work was involved to get the business to a certain level, and hence cannot make the business presentable for sale.  He/she may be in financial distress due to poor performance of the location.  Other times there’s a legal breach of the franchise agreement, for example when payments are not made on time or vendors are not paid in a timely manner. 

A breach of the franchise agreement can force the franchisee to sell the franchise back to the franchisor.

Even in circumstances such as these, the franchisor will want to keep the best foot forward for public relations reasons.  They will want, as much as possible, to keep legal and financial difficulties out of the public eye and to make a smooth transition with a temporary location closure, if it happens at all, for a very brief period.  As the franchisee, you’ll want to make this process easy as well by making sure your books and inventory are as up-to-date and as clean as possible.

Franchisees will also want to secure favorable non-compete terms as they exit the business.  Even though they may not want to work in the industry in the immediate future, they will have built up a fair amount of experience and may want to deploy that once the transition is over and they have had some time and distance from the negative outcome of their franchise experience.

Don’t Be Afraid to Ask for Help

Selling a franchise in any situation can be challenging and you don’t have to do it alone. Over the past three decades we’ve sold tons of franchise locations in many different situations. If you’re considering selling a franchise (or buying one) give us a call!

Which Small Business Valuation is the Best?

We’ve talked in the past about the importance of a professional small business valuation. Today we’re going to discuss different methods of small business valuation and which one might be the best for you.

Why Get a Small Business Valuation?

Small Business ValuationWhile you might think that the main reason to get a valuation is to get a good idea of a possible sale price, there are actually lots of reasons to get one:

  • A desire to better understand the growth of your business. Perhaps the least often cited reason for a small business valuation, but maybe the most important.
  • Interest in a merger or acquisition. You will need to know your financial position relative to your target, and you can’t do that without a valuation.
  • A desire to attract investors. Investors will want to see some basis for what you’re asking them to invest in.
  • Life events. You may be involved in a divorce or may have to buy out another owner.
  • Sharing equity with your team. You can’t offer equity to your staff without knowing the financial value of what you are offering them.
  • Need a line of credit or loan. A bank will want to know what they are getting themselves into.
  • Examining tax-planning strategies. If you want to get ahead of the tax game, this is important.

Get Your Paperwork Ready

Get your paperwork ready.Whichever method of small business valuation you use, you’ll need to get a few things in order for the professional who is going to help you.

There are three categories of paperwork you will need:

  1. Financial paperwork. The person in charge of your small business valuation is going to want to see a minimum of 3 years of business tax returns and financial statements, like balance sheets, income statements, and cash flow statements.
  2. Miscellaneous paperwork. This covers items like:
    1. Leases
    2. Permits
    3. Licenses
    4. Certifications
    5. Contracts
    6. Business Credit Reports
  3. Tangible assets.  
    1. Vehicle List
    2. Equipment List (focus on larger asset with at least $500 value)
    3. Real Property description and appraisal (if owned by the business)
  4. Intangible assets. This is helpful information for items that don’t easily have a value assigned to them, yet are very valuable. This could include items like:
    1. Patents and Trademarks
    2. An email list (number and engagement)
    3. SEO rankings (rankings across various keywords)
    4. Online reviews (number and frequency)
    5. CRM (customer data and leads)

You should have ready access to these items anyway, even if you don’t have a valuation on the horizon.  They will certainly be required of you in any business transaction.

Methods of Small Business Valuation

There are actually quite a few ways to do a valuation, but in this article we are going to focus on four of them.

Market-based valuation

This is the most subjective valuation and is not focused on the particular numbers of a given business but rather what the recent sale prices of similar companies have been. Similar companies would be within the same industry and revenue range. Finding relevant sales data on privately held industry peers can be difficult.

Discounted Cash Flow (DCF) valuation

For those who don’t have good memories of their financing or accounting classes, this might be triggering.  It will take a look at projected cash flow and the time value of money to determine a value. Projecting cash flows into the future is easily manipulated and difficult to determine for most small businesses and can be an easy target for debate.

Asset-based valuation

This is pretty straightforward: assets minus liabilities. However there is a division between whether the business will continue on after a sale (going concern) or it will be closed (liquidation). Obviously in the latter case the valuation will be lower as liquidation means assets will very likely be sold below market value.

Seller Discretionary Earnings (SDE) valuation

This is the small business valuation we most often see at Apex. This small business valuation takes your earnings and applies a multiplier that is appropriate for your industry. You start with EBIT (earnings before taxes and interest) and add back:

  • Owner compensation (the new owner may choose a different level of compensation)
  • Owner benefits (like season tickets or lake house)
  • Non-essential, non-recurring, or non-related expenses (an IRS audit, for example, or a new website build).
  • Typically, the valuation will include a reasonable replacement salary for a new owner.

Which is the Best Method of Small Business Valuation?

The short answer is: the one that makes the most sense for your business. While we often see the SDE method most frequently used for transactions we handle, if you’re planning to liquidate your business, an asset-based valuation would make a lot of sense.

Professional appraisers don’t tend to lean on just one form of valuation. Part of their process involves blending different methods to come to a smart and thoughtful final number. That is definitely something the majority of business owners do not have the expertise to do, and why we recommend you hire a professional.

Give us a call to get started on the process!

Why You Don’t Hire a Real Estate Agent to Sell a Business

Why You Don't Hire a Real Estate Agent to Sell a BusinessWhile at first there may seem to be some logic behind the idea of hiring a real estate agent, it’s probably the worst thing you can do if you’re seriously interested in either selling your business or getting the price you want for it. This doesn’t mean real estate agents and Realtors® you know are bad people. They are just not the people to hire to sell a business.

Pros?

But before we get to the bad news, let’s examine some of the reasons you might consider a real estate agent in the first place:

  1. Price! The real estate agent has told you that he/she will take a lower commission than a business broker would. That would be a pro, if the real estate agent could get you the same price that a business broker could. Otherwise, it’s very much penny-wise, pound-foolish.
  2. Real estate. Some sellers might think that because real estate is an asset that is involved in the sale, that they need to hire a real estate agent to handle the business sale. This isn’t necessarily the case.

Cons

Good vs. BadAlas, that’s the end of the good news. Now to the realities of hiring a real estate agent to sell a business.

  • Many business brokers have real estate licenses themselves or have solid relationships with brokers who do, so there is no need to hire a real estate agent just because real estate is involved in the sale of your business.
  • A real estate agent will list your business on MLS, where no one in the history of buying businesses has thought of looking to buy a business.
  • Real estate agents are not familiar with confidential sales.
  • A real estate agent does not have any of the certifications that are standard in business brokering.  Whether it’s a CBI, CM&AP, or M&AMI, they don’t have them. They know the value of certifications because they often have them themselves… but not for selling businesses.
  • A real estate agent knows about selling homes and commercial property, not businesses.
    • Due diligence, financing, purchase and sale agreements are all done differently
    • Pricing of a business is very different from pricing real estate
    • Marketing a business is entirely different from marketing a home
      • Part of this is nurturing a trusted set of potential buyers who have the financial wherewithal to do more than kick tires (if you want more insight into marketing a business, check out our day in the life of a broker)
  • A real estate agent is used to dealing with clients who are not looking to acquire and build a business. They’re used to dealing with someone who is looking to buy a home. They may occasionally deal with those interested in real estate investing, but in those cases either someone is looking to buy and flip (a short term investment) or buy and rent (usually something that will be delegated to a property manager, not wrapped into the daily life of the buyer).

An Important Choice

An Important ChoiceMore often than not, the sale of a business will be the most significant financial event of your life. This isn’t something that you want to price shop on, or delegate to someone just because he/she is a dear friend. This is something that you want a seasoned expert to handle, so they can guide you through the process, get you serious and qualified offers, and shepherd you to closing successfully. Many brokers have real estate licenses, but we don’t sell houses or investment properties. We know our expertise!

We’ve got real estate licenses galore in our offices here at Apex.  If you’ve got real estate in your business sale, we’ve got you covered.

The 8 Components of the Sellability Score

Eight ComponentsWe’ve reviewed John Warrilow’s book Built to Sell in our book club series and many of our case studies are taken from accounts shared on his Built to Sell podcast. In many of those interviews John goes over the same ground with business owners as they share their stories of building, growing, and exiting. Over time, John has developed a “sellability score” that we think captures some key metrics all potential sellers should take note of.

Financial performance

This metric is about your history of producing revenue and profit as well as how consistently and professionally your books have been prepared. In a certain sense, every business transaction starts here and it’s something we can never say enough about: pay your taxes and keep accurate financial records.

Growth Potential

If someone were to come into your business as a new owner, what rate of growth could he/she expect with regular effort? With nights + weekends effort? This can be gleaned not just from the trends your financials show, but products/services you have not yet implemented for various reasons. Could the business expand geographically? Could new customers be created from unused capacity?

Switzerland Structure

For Switzerland to have been neutral for centuries, it has had to learn to be very self-sufficient. Neutrality may keep you out of conflicts but sometimes it isolates you as well. So too with your business and dependence on a single customer. A general rule is that no more than 15% of your company’s revenue should come from a single customer. The more diversified your revenues are, the more attractive your business is to buyers.

Value Teeter-Totter

Can your business finance its growth from its own cash flow or does it need to rely on outside capital? A buyer will pay more for a company that has less need for outside financing, and will pay less for a company that has more need for it (hence the “teeter-totter”). Two quick ways to make adjustments here would be to reduce your collection times from your customers and increase your payment times to your vendors.  

Recurring Revenue

Do you have recurring revenue? Is it in the term of subscriptions or long-term contracts? What is your churn/cancel rate? The clearer your answers to these questions, the more a buyer can be assured of some “guaranteed” revenue.

Monopoly Control

How well are you differentiated from your competitors? The greater your competitive advantage, the likelier you are playing in a blue ocean, in which you define the rules your competitors play by. The more differentiated a business is, the more valuable it is to an acquirer.

Customer Satisfaction

In a previous article we discussed Fred Reichheld’s Net Promoter Score and how it could help you better understand how happy your customers are. In a certain sense, customer “satisfaction” is simply a baseline. You want them not just to be happy with what you’ve delivered, but happy enough to share your company with others.

Hub and Spoke

What does your management team look like? If you were incapacitated or unable to work for a period of weeks or months, how would your company perform? Employees that can be counted on are a major driver of confidence (and value) for potential buyers.

These factors are not a definitive list of key things a business owner should look at before considering a sale, but they are a very good list. And one that, if seriously attended to, will make a business incalculably better. Even if selling is not on the immediate horizon.  

Unhappy about how any of these components in your business at the moment? Give us a call so we can help you improve and get on the path to a possible exit.

2020, Elections, and Capital Gains Taxes

PoliticsThe new year is upon us, and it happens to be an election year. While the ups and downs of politics may seem to be, at first glance, unrelated to the buying and selling of businesses, the 2020 election promises two different visions for the country in relation to taxes and wealth. That said, it’s always smart to think ahead when it comes to tax consequences for selling a business, so let’s take a moment to examine a few ideas.

Capital Gains Tax

The capital gains tax is assessed on the increase in value between the cost basis of an asset and its eventual sale price. Long-term and short-term capital gains carry different tax rates and are classified based on whether an asset has been held for more or less than one year. The federal long-term rates are currently 0%, 15%, or 20%, depending on your tax bracket.

Taxes in an Exit

TaxesThose who have not sold a business before are frequently under the impression that almost all of the proceeds from the sale will be taxed at the long-term capital gains rate, but that’s not necessarily true. Many business owners are surprised by “depreciation recapture” that is taxed at ordinary income rates. The allocation of the purchase price between hard assets, goodwill, and other asset categories will be part of negotiations between buyer and seller and will have tax implications for both parties. An entity’s legal structure may also impact taxes. What’s good for the seller tax-wise is often bad for the buyer (and vice versa) so these points are often traded during negotiations.  

Time to Sell?

Whatever your political principles or betting tendencies for the 2020 election, it’s important to note that capital gains, like any tax policy, is a frequently targeted item. In 2003, President George W. Bush reduced capital gains to 15%. In 2013, President Obama raised capital gains to 20% for those making more than $400k annually. It was expected that President Trump might push for some capital gains cuts, but no progress on that so far.

We certainly did see a surge in sellers in 2012 as they anticipated an upcoming increase in the capital gains rate. And if you think there might be a change in presidency, many of the opposing candidates are on the record supporting an increase in taxes across the board, including in capital gains. While the election is at the end of 2020, and any legislation will need time and a willing congress to pass, it’s important to think about the tax impact of a sale sooner rather than later, in advance rather than in a panic. The exit is the most important financial decision you will make in building your business, so it’s important to work closely with an accounting professional to consider and plan your tax strategy and how you will structure that into the transaction.

Not sure what your tax consequences will be from a sale?  We can put you in touch with specialists who can help you decipher that.  Give us a call today.

“Call Me When You Have a Buyer”

Call Me When You Have a BuyerAs part of our job as business brokers, we cultivate long-term relationships with buyers and sellers. We do so with the latter because sometimes we plant the seed of possibly selling a company years and years before it may happen. With the former, it’s a question of earning trust by consistently bringing solid opportunities.

Sometimes on these calls or emails, we will get into a conversation with a seller who has tried to be his own broker in the past. And as such has (predictably) had bad experiences with looky-loos and tire kickers. “I’m only interested in serious buyers,” the seller will grimly state. “Call or email me when you get one.

If only it were that easy.

The reality is that buyers are reasonably savvy about the acquisition process. They are going to want a fair amount of information about the business upfront. Furthermore, we as brokers want to exclude tire kickers from bothering our clients, so we ensure that they have the financial ability to close a transaction of the size they pursue. We aren’t interested in finding one serious buyer, but rather half a dozen or more.

Confidential Business Review

The process begins with a Confidential Business Review (CBR) that details business operations and historical financial information. This briefing allows buyers to quickly see whether a particular business suits their needs and if their transaction goals are in line with what the seller is offering.  

Once a very simplified form of the CBR (brief description of the business, approximate revenues, net owner benefit, and asking price) has circulated among our internal buyers and the confidential marketing channels we use, we will get a number of interested parties who submit Non-Disclosure Agreements along with proof of financial fitness. For the sake of argument, let’s say that a given broker may reach out to 500 and get 50-75 interested parties for this first step.

NDA and Balance Sheets

Once we get their NDAs and balance sheets, we will then get them the CBR. From that step perhaps a dozen of the original 50-75 decide they want to go further and have a phone or in-person conversation with the seller. Of the dozen, perhaps half decide to visit the business in person and of those, perhaps three make bonafide offers.  

See the difference? At each step of the way, we have continued to qualify the buyer both in terms of financial ability and knowledge of the business. And at the end, instead of “one buyer” we may have several, and these people have come to this step with serious knowledge about the business opportunity.  

Save yourself from the tire kickers and leave the work (only a fraction of which is detailed above) to us. That leaves you free to run your business and keep it growing and profitable until you’re ready to pass it on to the buyer whose offer you ultimately accept — after a screening process that ensures it’ll be a serious offer.