What if You Already Have a Buyer for Your Business?
If a buyer finds you, do you still need a broker?
Normally, when an owner is thinking about selling their business, they will contact a business broker whose job is to advise, look for a qualified buyer, and help the parties negotiate the many possible pitfalls on the way to the closing table. It’s not an immediate process and can take months to make the perfect match. But what if a buyer finds you BEFORE you hire a broker?
In this scenario, it’s typically a willing family member, loyal employee, friendly competitor, or someone else that has a special connection with the business or the owner. This is usually great news for the seller because finding a buyer is often the most time consuming and tedious part of the entire process.
However, processing a business sale transaction is complicated and not like selling a home. It’s usually the most important transaction that a business owner will ever do in their lifetime. An entire career and the majority of the seller’s net worth is at stake. Don’t go it alone!
Who can help?
While it’s natural to ask your general business attorney for help, you will want to seek the professional guidance of someone who specifically does these types of transactions every day. Considering it’s likely the largest transaction of your lifetime, you can’t afford to miss any details that could haunt you forever. A business broker can guide you through the process and help increase the odds that you get the deal done, and oftentimes will help minimize your expenses. Tim Bellon with VR Business Brokers outlines the steps he uses to make sure the transaction goes smoothly.
Step 1. Get a broker “opinion of value”
Make sure you’re fair to yourself by knowing what your business is worth on the open market. A qualified business broker will take a look at your financial records and can let you know what similar businesses have sold for and what do expect.
Step 2. Draw up a purchase agreement
All purchase agreements are not the same. They will account for details such as the price, deal terms, contingencies, lease terms, real estate (if part of the deal), and many other potential items.
Step 3. Due diligence
Bellon starts the process off with having a due diligence kickoff meeting. He makes sure all parties understand the process involved and expected timelines. This part of the process may take a few weeks as details of the transaction are negotiated and accounted for. Among other intricacies, the buyer will likely be asked to provide a resume and a personal financial statement, while also working on securing financing.
If the buyer needs support with financing, a broker can recommend an SBA banker familiar with structuring similar deals. As part of his role, Bellon supports the buyer too and helps them with attorney and banker referrals while simultaneously hitting milestones to make sure funds are available at the time of closing.
The seller has their own set of challenges including making sure the landlord is aware of the pending transaction and is willing to sign over the subordination of lien rights, if the deal is being funded through SBA financing. Most sellers (or buyers) don’t realize that to satisfy SBA loan requirements,10 years needs to be left on the lease agreement. If this isn’t the case, the parties will have to negotiate with the landlord.
One particular sticking point, Bellon says, can be the examination of the financial records of the business. It is critical that the financial representation made by the seller is supported by the business’ financials. If there are excessive and questionable add backs (owner’s perks) made to the financial statements, the seller should expect the buyer to question at least some of these add backs.. Failure to do so may create questions and can lead to deal killing mistrust.
Step 4. Closing checklist
Bellon works from a proprietary “closing checklist” for the buyer and seller that accounts for details like:
- Deal timeline
- Contingencies
- Due Diligence Items
- Real estate/lease details
- Insurance details
- Personnel/employee details
Details like these require coordination with other professionals and need to be started weeks in advance of closing day. One example is in the case of life insurance. It can take a month or longer for a policy to take effect and funds won’t be available until the policy is bound.
Step 5. Closing day
Getting to the closing table is a challenge in itself. It’s the specific time and date chosen to hand over or transfer funds, get signatures, and literally give the keys to the new owner. It’s sometimes months of work that have to come together at precisely at this time. Any missed details at this point can not only postpone or kill the deal entirely, but can even result in legal action. To be sure there are no surprises, Bellon works with a third party closing attorney, to ensure that the closing documents are sent to each party ideally a week ahead of time.This closing attorney typically doesn’t represent either party and is only interested in making sure the deal is compliant with the law.
How much does it cost?
If you already have a buyer identified, working with a business broker can potentially save you money on professional fees as some states have professional associations, such as the Business Brokers of Florida, who have many of the forms needed to put together a deal that have been written by business attorneys. So in many cases, a large part of the work has already been done. The cost to complete the transaction can vary depending on the size and complexity of the deal, as well as how much buyer-seller negotiation happens. We recommend that both parties consult with a business attorney to get an estimate of what their own individual fees would be. The expense for the closing attorney is typically split 50/50, and it is not uncommon for the buyer to incur a few additional expenses. For complicated transactions like these, it is widely accepted as money well spent.
Having the confidence that the transaction was done right, can free your mind to focus on what’s next in life.
About Tim Bellon:
Tim Bellon, Owner VR Business Brokers: Tim was born and raised in North Dakota, and after the culmination of a 21+ year career in the U.S. Army, he and his wife Beth retired in Apollo Beach, FL. He earned his Bachelor’s Degree in History and Political Science from Concordia College, and a Master’s of Science in Defense Analysis from the Naval Postgraduate School.
Tim joined the VR Business Sales Team in 2012 as the owner and managing broker of an office serving the greater Tampa Bay, FL. During this time, he has focused on helping business owners realize their goals through selling, buying, or growing businesses. He also assists individuals, and companies looking to expand, in the identification and acquisition of businesses.
Tim is community-oriented and is a proud member of the following organizations; International Business Brokers Association (IBBA), Business Brokers of Florida (BBF), SouthShore Chamber of Commerce, Commercial Finance Association (CFA), American Legion, Disabled American Veterans (DAV), and the Knights of Columbus. Tim can be reached via email at TBellon@VRSouthShore.com.
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Why You Should Sell Your Business Amid a Pandemic
It seems odd to plan to sell your business now, but that’s exactly what you should do.
With a potential recession looming, why should you sell your company now? We spoke with Tampa Busines Broker, Tim Bellon to get his thoughts.
“A few of the big reasons an owner sells their company is because they age out, lose interest, or failing health forces their hand. And, of course, all of these reasons will continue to exist despite what economic cycle we are in. Selling a business now can be a good move because as brokers, we can explain (to buyers) why sales are down or even non-existent in March and April of this year. Everyone understands it was the government-mandated shutdown that temporarily hindered performance. Similar to a hurricane or other natural disaster, buyers won’t necessarily demand a discount because they know it was an isolated event.
However, if our slowdown lasts for months, it’s going to be harder to defend an owner’s position and they will have to face the reality that their business is worth a fraction of what it was only a couple months earlier. Multiple consecutive months of lackluster performance kills company value.”
Learned from history
In 2008, the United States suffered through the housing crisis. Known as the Great Recession, it was a tough decade for small businesses. Back then there were early warning signs that trouble was coming. If sellers missed their window, they were forced to stay in their businesses another 10 years before they recaptured the business value they had pre-2008. The result was many companies were sold for pennies on the dollar, (if at all) and others were trapped in their businesses. Those lessons can be applied to the current day.
Economists are split about what happens next. Expectations are tempered that the economy will immediately bounce back due to major interruptions in supply chains and uncertainty in demand. The worst-case scenario is if we have an “L shaped” recovery as we did during the Great Recession where it took 4 years to get back to pre-recession levels. So if owners miss their window to sell now, they may have to settle in for a long time.
The good news
Our government authorized 2 trillion dollars to go back into our economy to keep it going. While much of that money is in the form of outright cash payments to taxpayers, much of it was diverted to well known SBA loan programs. What were already attractive programs for buyers, terms got even better in March when the SBA announced they will be paying the principal, interest, and fees on new loans for 6 months if issued before September 27, 2020.
With financing becoming easier for buyers, it should increase competition to buy good businesses, therefore, keeping the price high.
Bellon summarizes, “The question company owners have to ask themselves is – are they willing to work in their business another 10 years if recovery is slow”. If that answer is no, they should investigate selling their business NOW. The first step is to learn what the company is worth
About Tim Bellon:
Tim Bellon, Owner VR Business Brokers: Tim was born and raised in North Dakota, and after the culmination of a 21+ year career in the U.S. Army, he and his wife Beth retired in Apollo Beach, FL. He earned his Bachelor’s Degree in History and Political Science from Concordia College, and a Master’s of Science in Defense Analysis from the Naval Postgraduate School.
Tim joined the VR Business Sales Team in 2012 as the owner and managing broker of an office serving the greater Tampa Bay, FL. During this time, he has focused on helping business owners realize their goals through selling, buying, or growing businesses. He also assists individuals, and companies looking to expand, in the identification and acquisition of businesses.
Tim is community-oriented and is a proud member of the following organizations; International Business Brokers Association (IBBA), Business Brokers of Florida (BBF), SouthShore Chamber of Commerce, Commercial Finance Association (CFA), American Legion, Disabled American Veterans (DAV), and the Knights of Columbus. Tim can be reached via email at TBellon@VRSouthShore.com.
Read MoreIt Takes A Team To Sell Your Business
I recently had the opportunity to attend the annual VR Business Brokers (VRBB) Annual Conference, as well as the International Business Brokers Association (IBBA) Annual Conference. After taking some time to reflect on my notes and materials I brought back to my office, I have a much greater appreciation for the various parties that help us get deals to the closing table. This list, not inclusive, includes other business brokers, bankers, transaction attorneys, CPAs/accounts, and many others. Here is a short description of how some of these key players contribute:
Other Business Brokers: Statistically, there is 50% chance that another broker will bring the buyer that eventually buys your business into the deal. It is in everyone’s best interest for all parties involved in getting deals done, whether directly or indirectly, that all brokers seek to establish and maintain a high level of education. Especially when you consider that a business is typically a family’s largest single asset, and that business sales are inherently complex. Some of these complexities include; the size of the deal, establishing a price and the terms of the deal, assignment of a commercial lease, etc.
Bankers: In most instances, sellers want all cash (and a lot of it) for their businesses, and buyers want the sellers to hold sellers’ notes (with as little down as possible). Neither of these scenarios typically take place, so working with quality Small Business Administration (SBA) Lenders is critical in our business. Here at VR, we always work with our lending partners very early in the process to see if they would consider pre-qualifying our deals for SBA Lending with a pre-qualification letter. While this letter doesn’t guarantee that the particular bank will do the deal, as we still need to bring a qualified buyer into the deal, it allows us to market the deal as being lender pre-qualified, and it typically gives prospective buyers a higher lever of comfort when they decide to explore a particular deal in more detail. If the business and the buyer are both strong, a buyer can purchase a business with a down payment of somewhere between 10% and 25% of the purchase price, while the seller gets all of the money due to them at closing.
Transaction Attorneys: In the course of getting our deals to the closing table, there are typically three different attorneys involved in the deal. The seller and buyer typically retain the services of an attorney to help them negotiate the process and paperwork. If either party doesn’t have an attorney, our office has worked with a number of highly qualified transaction attorneys that we feel very comfortable recommending. The third attorney involved serves as the closing attorney. We use a neutral (third party) closing attorney experienced in business sales. The role of this attorney is to implement the decision the seller and buyer have negotiated.
CPAs/Accountants: CPAs and accountants play a very important role for the seller and the buyer. For the seller, they will be key in ensuring that the books and records are in tip top shape and that the business is represented in the best possible way. They will also play an important role in advising the seller about the likely tax liability that they will face with the sale of their business, and they may also be able to provide possible deal structures and/or strategies that may mitigate some of the tax liability. CPAs/Accountants also play a key role in the support of the buyers. Some of the primary ways that they assist buyers may include; due diligence support, setting up of a corporate entity, bookkeeping, payroll, and a number of other possibilities.
Other possible team members may include, but would not be limited to:
401(k) Business Funding Experts – With 401(k) business financing (formerly known as Rollovers of Business Start-Ups (ROBS)), buyers can use funds from an eligible retirement account to buy a small business or franchise without taking a taxable distribution or getting a loan.
Financial Planners – As the sale of a business is often a precursor for retirement, the seller should consult with financial planners, or other similar planners, as to what to do with the proceeds of the sale.
Estate Planners – Many business owners have done extensive estate planning, focusing on their personal assets, but many fail to include their business assets in their estate plan.
Insurance Professional – Insurance professionals can help the seller determine if there are any gaps in their retirement planning that may be mitigated with insurance, and they can also assist the buyer with their insurance needs for the business.
Business Appraiser – Helps set, or validates, the sales price of the business (seller up front and the buyer during the due diligence phase) and can also determine the value for assets within the business.
Navigating one’s way through the sale and purchase of a business is a complex undertaking. Having access to the right team members will help ensure that the process is as smooth as possible. At VR Business Sales we understand the complexities of putting together a deal and strive to foster relationships with teams of professionals who can help. If you are thinking about selling your business, we would welcome the opportunity assist you and your family in reaching your goals through a successful transition out of your business.
One of the Most Active Business Brokerage Firms in Florida VR Business Sales has been the leader in the business brokerage industry for over thirty-five years and consists of approximately 50 independently owned and operated offices worldwide. VR Business Sales located in Tampa/Apollo Beach was founded in 2012 and offers VR’s exceptional brokerage services to the Central Florida market. We represent a wide variety of business owners operating within a wide range of industry segments. Our office consistently ranks within the Top 10 offices in the VR network, and in 2016 we were the #3 office in commissions earned and had the #1 office owner and #3 sales associate. Call us at 813-260-3127 to arrange a meeting.”
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