FAQ To Help You Sell Your Business
Our Most frequent questions and answers for Business Sellers FAQ
Our Comprehensive Marketing Plans Include:
Your business will receive wide exposure to a targeted business buyers across several media platforms:
Online: We will promote your business on several high traffic websites, such as BizBuySell, Loopnet, etc. and national internet websites. We also announce new business opportunities via email blasts and on our social media websites such as Youtube, Twitter, Facebook, Google My Business, etc.
Broker To Broker Marketing: We will market your business to thousands of business brokers through our affiliations with the California Association of Business Brokers; and, nationally, through the International Business Brokers Association.
Buyer Database Marketing: We also have several buyer databases with hundreds of buyers who contact us regularly seeking a great business opportunities to buy.
We require all prospective buyers to sign our Confidentiality/ Non-Disclosure Agreement (NDA). The NDA agreement prohibits them from contacting anyone associated with your business and from releasing information about your company to anyone other than their professional advisors.
Additionally, we interview all potential buyers for information regarding their relevant employment history, financial status and the type of business they are seeking. Once a potential if properly screened, we provide them with your confidential business information and respond to all questions. Should they find your business intriguing, then we schedule a meeting for the prospective buyer to meet with you to further inquire about your business.
Many business will not qualify for a Small Business Administration (SBA) loan due to their rigorous underwriting process. If your business does not meet SBA lending requirements, then what alternatives do buyers have to purchase your business?
Buyers might be able to draw equity from their home if they are homeowners. If they have 401K retirement accounts, they might be able to use it to purchase a business. There are also unsecured loans but the interest rates tend to be very high which then reduces the buyer’s ability to service the debt. As far as all cash offers, they are rare and most businesses that are listed for all cash don’t sell.
Realistically, sellers who offer financing will be able to sell their business, closer to their asking price, and make additional income on the financing interest. Sellers who are willing to finance signal buyers that the seller is confident about the business and willing to share the risk.
With reasonable terms, seller financing dramatically increases the likelihood of sale and the time period from listing to sale greatly decreases. Most sellers are unaware of how much interest they can receive by financing the sale of their business. In some cases it can greatly increase the amount received.
There are also tax advantages to the seller by providing seller financing. The seller’s earnings from the sale are metered out over a period of years which may reduce the tax base for the seller.
The collateral is usually the business so that if the buyer defaults, the seller is able to take back the business.
A buyer’s offer usually has one or more contingencies. Usually, the contingencies concern a detailed review of your financial records, operational records, lease agreement, franchise agreement (if there is one), and other pertinent details of the business, as well as a financing contingency for an SBA loan. You may accept the terms of the offer or you may make a counter-offer. If you do not accept the buyer’s proposal, the buyer can withdraw it at any time.
Once you and the buyer are in agreement, the buyer will provide the seller with a good-faith initial deposit. Thereafter, both parties work to satisfy and remove the contingencies in the offer. Sellers who are highly responsive and engaged with the buyer’s requests serve themselves because full cooperation assures the buyer that the seller has nothing to hide and is being forthright in the sale. Buyers may bring in outside advisors, such as accountants, lawyers, and/or industry specialists, to help them review the information. When all the conditions have been met, the parties formally open a business escrow.
During the business escrow, the escrow officer completes all necessary requirements pertaining to relevant regulations, taxing authorities, and other governmental agencies. The buyer will make additional deposits and secure financing. If a lease is involved, the parties will also work with the landlord to assign the lease to the buyer or secure a new lease. If there is a franchise, the parties will work with the franchisor to meet all the necessary pre-requisites to transfer the franchise to the buyer.
Upon completion of all contingency items, regulatory requirements, financing and deposit of funds, the business escrow is completed and the buyer is officially the new owner. Upon the close of escrow, the new owner takes possession and the seller typically provides a period of onboarding and/or training to facilitate the buyer’s ownership.
A buyer will want up-to-date financial information. If you use accountants, you can work with them on making current information available. Time is of the essence in any business sale transaction. The failure to close on schedule permits the buyer to reconsider or make changes in the original proposal. Consequently, you want to make sure that all of the professionals involved are able to perform their part by the close of escrow date.
Business brokers perform business valuations usually based on the last 3-5 years of tax returns and the most recent profit & loss statement. From this information, a business broker will determine the discretionary earnings.
Additionally, depending on the industry, the business broker will apply a multiplier derived from comparable business sales to the discretionary earnings to determine a realistic listing price. So if a seller’s discretionary earnings is $100,000 and their industry multiple is 2x, then the recommended valuation will be $200,000 (DE x 2 = valuation).
Of course this is a simple characterization. Most valuations are much more complicated and involve a number of variables. Mission Peak Brokers have extensive experience in performing business valuations.
Business brokers are professionals who facilitate the sale of a business. Business Brokers help you decide how to price your business and how to structure the sale for a successful outcome for you and the buyer. They screen prospective buyers to find the right buyer for your business.
Business brokers inform and educate clients about the business buying process. They are familiar with the market and can advise you about local trends, pricing, escrow and financing.
Business brokers handle all of the details of a business sale. They guide clients toward a successful close including other professionals for specialized assistance as needed.
On average, it takes between 6-9 months to sell most businesses.
There are many factors that affect the timeline for the sale of the business. These factors include desirability of the business, profitability, whether there are clean books and records, whether financing is available, whether the business was realistically priced, etc. Sellers who have their books and records ready for sale help themselves by being highly responsive to buyer’s requests.
It is also important that the business be priced properly right from the start. Some sellers overprice their business by reasoning that they can always come down in price but the effect is usually buyers passing on the seller’s listing as an overpriced business.
One key element towards facilitating the sale of a business is the amount of the down payment. The lower the down payment, generally less than 30% of the asking price, the shorter the time to a successful sale. When a business qualifies for SBA financing, the down payment will be 10-20% down. Where there’s seller financing, a reasonable down payment signals a potential buyer that the seller has confidence in the business’s ability to make the payments.