TIPS FOR SELLING YOUR BUSINESS

TIPS FOR SELLING YOUR BUSINESS

THE BIZ VAULT has a very different outlook for listing any business and also for buyers that are buying a new business. We offer your business with many more details that the buyer may want to see, if you want them to.

Many brokers that assist the owners of a company for sale make the act of selling your business a very good experience at THE BIZ VAULT. Selling your business can be easy if you let the professionals do the hard work, the professional way at THE BIZ VAULT.

WHY THE BIZVAULT.COM

When a buyer is looking for a business, they want certain information to base their decision on. Why have them skip over your business? When a seller lists their business on THE BIZ VAULT, they are doing this to get it sold.

Missing information could hurt your chance of finding the buyer fast. Many buyers do not have the time to “chase details” and they want more information. At THE BIZ VAULT they can excel.

Why list your business without the valuable information the buyer needs to know? This is why many buyers overlook your business.

THE OLD WAY TO SELL A BUSINESS IS WITH LIMITED INFORMATION

THE NEW WAY TO SELL YOUR BUSINESS IS WITH MORE INFORMATION

Many websites tend to offer tips and information, or certain business and accounting terms that only an accountant, a business analyst, business broker, or most bankers will understand.

They can make selling your business confusing for you.

In other cases, a seller is well prepared to sell a business, but this is very rare. The sellers have built their business and never studied what is involved in the sale or exit plan. They were busy building their business.

At THE BIZ VAULT we make this easy for you. Talk to the broker that earned your business listing first. Get a good feel for the business broker, and dedicate some time to listen to the broker. Their advice will be seasoned advice and very valuable to you as you proceed forth in your venture to sell.

SELLERS BROKERS STREAMLINE THIS FOR YOU

You are selling your small business that a hard worker built. Ask the tough questions and the broker will always try to provide you with an honest answer. If he or she can't answer the question at that moment, they will find the answer and call you back. THE BIZ VAULT has a platform that will help.

Even though you are very sincere and are ready, prepared, and very anxious to sell a business, the broker must have the entire buyers’ information they will need in place also.

Some sellers take the approach to offer their business on their own. This can work on a small business with a low selling price.

When the cost to buy your business is in the hundreds of thousands of dollars, over a million, and in the millions, there is no question, you will need a broker. Listing on THE BIZ VAULT is your solution.

TRANSPARENCY AND HONESTY

The key to any seller and buyer is TRANSPARENCY AND HONESTY. This means both the seller and the buyer must represent themselves with a very open and honest dialog. THE BIZ VAULT is here to help.

Small businesses may overstate what they offer to the buyer however, a seller may also understate what value their business has. This is normal and your accountant and the seller's broker can help you with these matters.

A buyer may overstate he has the money to buy your business, but, in reality, he or she is not prepared to buy a business. This also is normal in some cases, because he or she did not do their homework or “self-examination” as to whether they are ready to own a business. A business broker may also help the buyer and show these different avenues to obtain the best funding opportunities.

WHY USE A BROKER A BROKER AT THE BIZ VAULT?

“A BROKER IS YOUR BUSINESS SELLING DOCTOR”

THEY ARE IN THE BUSINESS SELLING TRIAGE ROOM

You want to SELL a very good small business. You are the best at what you do just as; the buyer is the best at what they do. The broker will sort it out for you. THE BIZ VAULT is here to help.

The broker will ask you for certain information from the buyer and their background. They will ask about their business experience and any finances. They will ask the buyer why they have an interest in "buying this business".

This is a very important question. If you are holding a small note from the buyer after you sell the business, you want the business to prosper going forward so you can get paid in full.

Brokers are masters in this art of guiding sellers and buyers and will save you endless hours, days and, possibly weeks of nonsense. Brokers need to be registered to represent a client.

Then, at a very special point, they will reach out to you and say “The buyer would like to meet you”

Typically, a broker will step in and eliminate potential new business owners that are not prepared, to buy a business.

All buyers must and should speak with their lender to see if they qualify to even approach a possible purchase of a new business unless they are self-funding. Typically self-funding and cash deals do not happen with small businesses.

Even buyers with the cash on hand will borrow the funding to reduce the exposure. Cash is king and most buyers will hold on to as much of the actual cash that they may have on hand.

Most buyers are very sincere and honest. In some cases, there are some buyers, that have been searching for a business to buy, for literally the many years and may never buy one. A broker is very wise to this and may even say to the seller, “Yes, I know this buyer and I have shown them a few businesses for sale but, they have no money and no credit”.

Yes, this can happen when any business is listed. A broker will advise the seller that staying away from the potential buyer is very important in the first stages. A broker will advise the seller how and when they may speak with the buyer.

Often, a proposed buyer wants to take that first step to buy a business and he or she may want information directly from the seller. DO NOT TAKE THIS APPROACH. A good seller's broker will not allow this at all. The buyer needs to prove to the broker that he or she will be a good fit and has the financing first and foremost.

Ask your broker for their business selling checklist. It is a necessity to start your business selling process.

It will always be in the best interest of the buyer to represent themselves well the first time. The average small business owner does not have the tools required to see if the buyer can even get approved to buy their business.

The seller’s excitement can and will turn into remorse very fast and normally, within a few days, if a buyer is asking the wrong questions.

In other words, speak with the broker first and never offer any buyers to "see the books first" for the business you may want to sell. The answer from the broker will always be "a solid answer, of NO"

You are walking into a danger zone by initially speaking with the buyer. The buyer should speak to the broker first in all cases.

A broker is the seller's representative. A broker is trained and experienced in this selling and buying field. Chances are they have already sold a business, like or similar to the one you want to buy.

A broker can typically realize if a buyer for the business is the correct person, many times in the first 20 minutes of a conversation. Whereas, a seller of a business may think he or she has someone that may be interested in their business and tends to believe what they hear from an interested buyer.

In some cases, a buyer wants information from the seller because he or she is a competitor or simply wants to duplicate that success and open that same business, to become a new competition. This is one of many reasons why a seller must HAVE A BROKER AT THEIR SIDE.

A broker will have any potential buyer; sign a legal NDA (Non-Disclosure Agreement) right away. After the NDA (Non-Disclosure Agreement) is signed, only certain internal details about a business can be released from the broker to the buyer only. This is called a CBR (Confidential Business Report).

THE BROKER’S FEE

In many cases, some of a broker’s fee is actually “found” money that goes into the actual recast value of the business. What does this mean? Simply put, a broker will see money that the seller has spent that a new buyer may not have to spend. Each business deal is different and there is always "found money" for the buyer of a good business.

He or she will also guide the possible new business owner and show them possible ways to save money when they take over. Let the broker worry about this. After the buyer looks at the books of the company they are interested in, they also, may see "found money" that they simply won't spend when they're in the driver's seat. It's simply that easy!

Vetting or analyzing a business for sale is a must. A buyer may not be trained in this field in some cases. With a good accountant at their side, he or she will determine whether or not the asking price is low and a good investment or too high for consideration.

Numbers do not lie and certainly some have a hidden value in the business that you may not be aware of. Some numbers also may bring a burden to a buyer. Accountants are trained in this field and can guide a buyer also.

In any successful business, the seller’s accountant and the seller’s broker will find the money that has been spent during the year by the seller that has a great value to the buyer. This will be an advantage to you, the buyer on the day of closing the deal.

Your accountant may even see a potential avenue for the buyer in new opportunities for their new business that even a seasoned business person did not see. Many accountants have seen it all, heard all the stories, and will be your guide until the day you finally close on the purchase of your business.

CAN THE BUSINESS GET "SBA APPROVED?"

Not all businesses can be backed for the buyer by the SBA such as a franchise, cannabis-related, gambling, and many more. Typically, a business that is under 3 years old will not be approved either. Your business must have a good history.

Why the SBA approval is necessary? Typically a buyer of a business does not have the full amount of cash on hand. Many times a buyer won't have enough collateral to "back" the entire loan.

Banks rarely provide business loans without government backing. Simply put, banks do not take chances, and banks will always say "we need to be at a certain comfort level" to issue the buyer a loan.

The truth on how a bank looks at a business loan will never be fully explained to you. Banks have certain businesses that they prefer to be in their portfolio. Some banks like loaning to production or industrial business, whereas; a different bank may like retail and real estate. Banks look at their profits, exposure, and their reputation. So how does a bank look at my business for a small business loan for the buyer?

THE BANKS AND BUSINESS LOANS

The SBA does not loan money. They only “back the loan” for the bank. The SBA has set rules on backing a bank on all funding.

A loan application will be looked at by a loan officer at first. The loan officer may guide the buyer on their application. He or she will know what the bank requires.

Next, the application may go to a senior loan officer for review. Then after review, the loan package goes to the bank’s underwriter for the loan.

Every Loan Officer works with Underwriters. The underwriters are the people who determine whether a client is safe enough to lend money to, while the loan officer is often the one to tell a buyer an underwriter's decision.

The loan officer may never actually speak to the underwriter in many cases. Much of the correspondence is by email and internal memo. In large banks, the underwriters are off-site and mostly hidden away crunching numbers.

A loan officer collects the many documents necessary for the buyer’s application. The underwriter verifies their identification, checks their credit history, and assesses their financial situation including their income, cash reserves, equity investment, financial assets, and other risk factors.

Underwriting simply means that the buyer’s lender verifies their income, assets, and debt and property details in order to issue final approval for their loan. An underwriter is a financial expert who takes a look at the buyer’s finances and assesses how much risk a lender will take on, if they decide to give the buyer a loan.

THE GOLDEN MOMENT

Your broker will reach you at some point and say they either have an LOI (Letter of Intent) or the buyer wants to offer an LOI

Why did your broker say this? They said this, because the broker has “vetted the buyer” the best that they could, based on their good experience and what the new buyer provided the broker.

The bank has looked at the documents from the buyer and the seller. They have looked at your business experience, financial records, and the ability to work side by side with the buyer for training if training is needed. A broker, the buyer, and the bank also want a very smooth transaction just as you do.

A well-written LOI will contain the below:

1. Purchase price and terms
2. Assets covered and delivery date
3. Closing date for the due diligence period
4. Any consulting arrangements with employees
5. Any owners investigation of the business
6. Any confidential information like inventory, database and sales records
7. Any expenses and conditions to the closing
8. The releasing of public information
9. Any well-kept internal information that sellers would normally keep safe
10. An agreement that either party can stop the LOI at any time and return the deposit without loss

IT IS NOW DUE DILIGENCE TIME

The buyer will look at the business to see if it is clean and organized. The buyer will look at this first, during a visit.

They will inspect some inventory and some minor internal documentation on inventories. If they see unorganized inventory, chances are, the books are not organized either.

The buyer will check for repairs a seller may have overlooked and ask you about them.

Are all machines, equipment in good working order? A new buyer does not want to make a capital investment right away after they purchase a company.

The buyer will look at some portions of the books, taxes, employee records, purchases, shipping, and sales records that must be up to date and well organized.

The buyer’s accountant may find errors and this will raise red flags even before full due diligence. The buyer will require full disclosure!

It is customary for the buyer of a business to offer a good faith deposit at the time of signing an LOI. Deposits will vary and can be as much as five to ten percent of the total purchase price. Normally a deposit is fully refundable to the buyer.

In any LOI the buyer or the seller can agree to any terms, however, it is always wise to have your attorney review any forms that are issued before any signature.

A seller will look at the LOI and may ask for different terms or guidelines before signing. When the LOI is accepted, it is time to take a further look at the business for an in-depth look. This is the due diligence period and the period to start making the Purchase and Sale Agreement.

If the due diligence went fine then this is the time for the buyer to sign a P&S (Purchase and Sale Agreement).

Generally, a buyer signs a letter of intent to purchase a business and the seller accepts the letter, the buyer will have a specified period in which to conduct a due diligence investigation of the seller and the company. There will also be a time frame for the P&S (Purchase and Sale Agreement) in the LOI (Letter Of Intent) to be executed.

Depending on the size of the business this due diligence period can take 2 to 30 days. The larger the business is will determine the due diligence time. A very large business with a vast amount of inventory, employees, and locations can take months for the due diligence to be completed. This type of due diligence should be broken up into phases with strict stipulations in place so your time is not wasted in the event the buyer has a change of mind. Your broker will advise you on this. This should be specified and agreed to in the LOI.

The buyer will then perform an independent financial analysis of your company. It is always wise to have your attorney and accountant review any forms that are issued before any signature.

The buyer will look at the business to see if it is clean and organized. The buyers will look at this first, during a visit.

The buyer will check the inventory and internal documentation on your inventory. Buyers will always check this. If they see unorganized inventory, chances are, the books are not organized either.

The buyer will check for repairs a seller may have overlooked and ask you about them. Are all machines, equipment in good working order? A new buyer does not want to make a capital investment right away after they purchase a company.

A buyer may also check the below depending on their level of trust, expertise, business knowledge, and training. It is always wise to have your attorney; an accountant or an independent firm assists you and guide you on any due diligence.

COMMON ANALYSIS OF A COMPANY DURING DUE DILIGENCE

Assets (real estate, personal property, and intellectual property)

Any notes due or payable under certain terms

Compiled Reviewed or Audited financial statements for at least 3 years

Employee salaries, responsibilities and benefits

Pending litigation or any environmental issues

Any City, State, and Federal tax records.

Inventory, product line, service work, and customer data.

Contracts if any, with suppliers and customers.

Insurance and any pending litigation

Current standing with the states the business is located in.

Employee interviews if applicable

The buyer will probably add to this list depending on the business structure.

If at this point, if the buyer is satisfied with the complete due diligence that they have done, they will now offer a P&S (Purchase and Sale Agreement). Next, a closing date for the legal purchase of the business will be set with all terms and agreements.

ITEMS THAT YOU'RE BUYER WILL BE ADDRESSING

Step 1.

Your buyer has found a business that interests them

Step 2.

The buyer has spoken or met with the listing broker first

Step 3.

The buyer did their pre-due diligence for your new business in that field

Step 4.

Your buyer has signed an NDA with you (Non-Disclosure Agreement)

Step 5.

Your buyer will ask the broker for the CBR (Confidential Business Report)

Step 6.

A buyer will now obtain the Balance sheets and profit and loss statements

Step 7.

A buyer may ask for the recast from the broker

Step 8.

The buyer, the broker or buyer's accountant will calculate the (EBITDA) earnings before interest, taxes, depreciation, and amortization

Step 9.

A buyer may want a walk-thru with the seller of the business if possible

Step 10.

The buyer will ask for an inventory and equipment list

Step 11.

The buyer should have Banking, law firm, accountant and advisors in place

Step 12.

The buyer will present an LOI (letter Of Intent)

Step 13.

Most buyers will have a personal closing checklist with other questions

Step 14.

A buyer should have spoken with a lender to start the loan process

Step 15.

Your buyer may want to meet with employees when and if applicable

Step 16.

The buyer will conduct due diligence with a time table

Step 17.

A buyer or the buyer's accountant will look at the accounting software

Step 18.

A buyer will compare insurance coverages and cost based on their quotes

Step 19.

Your buyer may check for any environmental issues

Step 20.

Your buyer will speak with any landlords about lease or rent agreements

Step 21.

The buyer's attorney and accountant will check the whole property/land/Buildings

Step 22.

The buyer will negotiate the Purchase Agreement

Step 23.

A buyer will want to choose a Deal Structure

Step 24.

The buyer now presents a P&S (Purchase and Sale Agreement) / Both parties sign

Step 25.

Buyer, seller, and broker prepare Your pre-Closing Checklist

Step 26.

Your buyer may ask to meet with the seller's Manager(s) if Applicable

Step 27.

All involved will obtain all Consents and Approvals

Step 28.

It’s closing day and you effectuate the closing