Seller’s 2nd most frequently asked questions

Making the decision to sell their business can be one of the biggest decisions an owner can make in their career.  Whether your motivations are retirement, relocating or other business ventures most business owners (and prospective buyers) do not have a strong sense of how the process works.  Typically, once a seller is comfortable with their business’ value and terms to market for sale (the #1 question by the way), the next 2 questions follow:

1) HOW WILL MY CONFIDENTIALITY BE MAINTAINED?

This may be one of the most important concerns for a seller. For example, imagine the impact the news of a pending sale would have on your business when your competition, customers, employees and suppliers find out.

We go to great lengths to ensure that only motivated, qualified buyers find out that your business is for sale.

Our procedures include, but are not limited to, interviewing all prospective buyers in person to understand their life experiences and business interests. Understanding how much capital the buyer is working with is another critical step.

When applicable, if it makes good business sense to contact a competitor of yours, we have a proven method to engage their acquisition interests without them knowing why we're asking. If your competitor expresses an interest in an acquisition, we will share this information with you before we talk to them about your business.

In all cases, before the name of your business is disclosed, all prospective buyers must sign a Non-Disclosure Agreement binding them to complete confidentiality.

2) WHAT HAPPENS WHEN A BUYER IS INTERESTED IN MY BUSINESS?

When a buyer becomes interested in your business, it will be after we have already qualified them, had them sign a Non-Disclosure Agreement, and they have been given an overview of your business.

At this point in time, we will arrange a meeting with you, the buyer and us. As a seller, you will be asked a variety of questions, both operational and historical. The most important thing you can do is to answer them honestly, accurately and completely.

Just as a buyer has a choice of which business they buy, you have a choice of who you sell it to. This meeting will also give you a chance to find out more about the buyer.

After this meeting, we will work closely with the buyer and encourage them to write a binding Offer to Purchase.

When an Offer is made, we will present and explain its contents to you. Upon acceptance, we will work diligently through closing and make sure that all the conditions of the contract are met.

Do you have small business questions you would like answered about this article or others?  Please visit www.VRWindsor.com or call 519-903-7807. 

William Sivell is a sales representative of VR Windsor Inc., Business Brokerage; his blog appears every Tuesday.

Preparing to sell your business for the highest price

Preparing to sell a business means more than simply sprucing up its operations.  To get the highest and best price, there are a number of steps a seller needs to take.  Although preparation may seem time-consuming, many owners find that taking the following steps not only improves their management practices, it can improve the desirability and the value of their business as well.  Plus, when a buyer makes an accepted offer, the following preparations can help the deal close quicker.

The common thread weaving through all of these steps is credibility.  We’ve all read what has happened with Enron, Global Crossing, Tyco, etc. and so have buyers.  If sellers want to keep buyers moving forward, they must show their respect by being open, honest and accurate about all things, both good and bad. 

The first step in a seller’s preparation is understanding if now is the time to sell.  If a business’ current financial picture doesn’t match the owner’s expectations, one or the other has to be adjusted. 

A seller must also know their reason(s) for selling.  It is one of the first questions a buyer will ask so they should be prepared to articulate their reason (s).  Ideally, it’s much better when the reason (s) are not urgent.  This is why it is better to sell-out when times are good than wait to burnout when they aren’t. 

Seller will need to get their books in order.  Prospective buyers will want to see at least three years of tax returns and Profit and Loss Statements.  Sellers should have their accountant review their P & L to ensure accuracy and they will need to be ready to answer questions about sales, profits, expenses, etc.

As part of getting their books in order, sellers need to understand their business’ true profitability or cash flow.  Since most businesses claim a variety of non-operational expenses (i.e. personal auto lease, personal medical insurance, etc.) owners must make sure they have supporting documentation for these.  Sellers need to be able to quantify and substantiate this because at the end of the day, although buyers are purchasing a business, what they are really buying is its cash flow.

Sellers must also make sure all of their legal commitments are in order.  They need to review their permits, leases, client and vendor contracts, etc. and understand their impact on the business.  If the business’s locations is key to its performance, a long-term lease with options would be appealing to a buyer.  A buyer may not normally be attracted to a business where any one client represents more than 20 percent of revenues.  Formal contracts with suppliers and clients can ensure the continuity of key relationships giving the buyer peace of mind that current revenues and/or rates will continue.

If an owner is absolutely vital to the business, efforts must be made to gradually delegate key responsibilities to various staff members, especially those related to customer relationships and revenue generation.  A business that is excessively dependent on the current owner increases the risk in the eyes of a prospective buyer.

When sellers have a buyer coming out to see their business for the first time, it’s important to make a good first impression.  Buyers look for companies that show well because it can often be indicative of an orderly run business.  The first impression can turn on (or off) buyers and add (or subtract) value from the business.

And finally, sellers should use a professional business broker to enable them to keep focused on increasing their cash flow.  They can’t afford to let the business’ performance decline because they’re too focused on its sale.  This will only give buyers additional negotiating power to lower their offers.  Also, not only does having a third party represent their interests indicate that they are taking this venture seriously; it can often lead to a number of buyers being interested in their business.

Do you have small business questions you would like answered about this article or others?  Please visit www.VRWindsor.com or call 519-903-7807. 

William Sivell is a sales representative of VR Windsor Inc., Business Brokerage; his blog appears every Tuesday.

Don’t Be A Business Owner Who Does It All!

‘Does and Don’ts' for Business Owners

Some businesses can’t survive without the owners trying to do everything themselves.  And they have no key employees to help manage the operations.  Buyers for businesses like these may be concerned if they themselves can’t replace the skills and experience of the owner.  As a result, these businesses may have very little value to anyone else.  Business owners who don’t delegate need to make a strong effort to have experienced key people in place before they ever try to sell their companies.

Business planning can uncover and identify what creates or adds value to your busines, ask yourself the following questions:

·         Can the company operate without you for more than a week or two?

·         Is there any cross-trained management to fill in if you were gone?

·         What is the average age of management?

·         Will they retire soon?

·         What levels of experience and education do they possess?

·         What is the average length of employment amongst staff?

·         How difficult would you be to replace?

Once you have built a strong team consider business strategies like incentive compensation plans to recognize, reward and retain high performing employees. Legal protections including non-compete agreements and taking steps to protect proprietary information and trade secrets should be considered.  Having a good management team can add value to your business.  You will make your business more marketable to buyers and increase the likelihood of a successful transfer.

Do you have small business questions you would like answered about this article or others?  Please visit www.VRWindsor.com or call 519-903-7807. 

William Sivell is a sales representative of VR Windsor Inc., Business Brokerage; his blog appears every Tuesday.

Steps to follow when looking to buy a business

Recently, I wrote about the benefits of buying an existing business rather than starting a new one.  Once a buyer has decided to do this, the question then becomes “What business should I buy?”

I can’t answer the above question because the only person who can solve it is the buyer.  However, I can suggest a number of steps a buyer should take to help ensure that they will be happy with their decision.  For starters, buyers need to take an honest inventory of their skills, knowledge and interests.  Do they enjoy interacting with the public or are they more content behind a desk?  Are they comfortable with managing people and making decisions?  What technical skills or talents do they have that they can incorporate into the business?

At this point, buyers shouldn’t be too concerned if they are unable to identify exactly what type of business they’re looking for.  Normally, most buyers know what they’re not interested in, but really don’t know what would be attractive to them. 

This cataloguing also includes a solid understanding of their financial situation.  Buyers need to know how much money they are prepared to invest and how much they expect to make.  Typically, these two amounts are directly related to one another.

Secondly, buyers will need to start their search to find the availability of businesses that match their profile.  Scheduling an appointment with a business broker will give buyers a good sense of what is available.

The next step is often the hardest for many buyers, making an offer.  A well-written offer to purchase will contain all the language necessary to successfully transfer a business while offering a number of conditions that will give the buyer (and the seller) the required safeguards. 

When it comes to negotiating, buyers (and sellers) must make sure they focus on the issues that are important to them rather than details that are not critical.  In Fisher and Ury’s “Getting To Yes,” they dedicated a number of chapters on this issue stressing that successful negotiations focus on interests, not positions. 

Once an offer has been accepted, the next step is for the buyer to begin their due diligence.  There is no point in beginning this until the buyer and the seller reach an agreement on price, down payment and terms.  This is the point in time where a buyer’s accountant comes in and verifies the seller’s cash flow. 

Beware that many outside advisors will seldom tell a buyer they should buy a business, and they shouldn’t be expected to.  If pressed for an answer, they’ll often give the buyer what they consider the safest one, “No.” In fact, I rarely met a buyer’s accountant who thought his client didn’t pay too much for a business.  Conversely, I’ve hardly met a seller’s accountant who felt their client sold their business for enough money?

The last step in the process is to bring in a lawyer to complete the necessary paperwork to ensure a smooth transition.  This includes lien and title searches, promissory notes, bills of sale, etc. enabling the ownership of the business to change hands. 

A business broker is a professional that buyers should turn to for assistance when deciding to buy.  They can show the buyer a variety of businesses that are legitimately interested in selling and help them through the purchase process.  With plenty of businesses to choose from in today’s market, it is more important than ever for buyers to make sure that their efforts remain focused on choosing the right business for them.

Do you have small business questions you would like answered about this article or others?  Please visit www.VRWindsor.com or call 519-903-7807. 

William Sivell is a sales representative of VR Windsor Inc., Business Brokerage; his blog appears every Tuesday.