Selling a Business Articles


Financing the Sale of a Business

How the purchase of a business will be structured is something that must be dealt with early on in the process of selling your company. The simple fact is that the financing of the sale of a business is too important to treat as an afterthought. The final structure of any sale will be the result of the negotiations between buyer and seller. In order for the sale to be completed in a satisfactory manner, it is vital that the seller answers six key questions: What is your lowest “rock bottom” price for the business for sale? It is important for sellers to know what is the lowest price they are willing to accept before they begin negotiations. Far too often, sellers have not determined what price is their “lowest price” and this can literally cause negotiations to fall apart. What are the tax consequences of the sale? Sellers often don't think about the tax consequences of the sale. Taxes will never go away and will be part of the sale regardless of when you sell a business. … [Read more...]

Defining Goodwill When Selling Your Company

You may hear the word “goodwill” thrown around a lot, but what does it really mean? When it comes to selling a business, the term refers to all the effort that the seller put into a business over the year. Goodwill can be thought of as the difference between the various tangible assets that a business has and the overall purchase price. The M&A Dictionary defines goodwill in the following way, “An intangible fixed asset that is carried as an asset on the balance sheet, such as a recognizable company or product name or strong reputation. When one company pays more than the net book value for another, the former is typically paying for goodwill. Goodwill is often viewed as an approximation of the value of a company's brand names, reputation, or long-term relationships that cannot otherwise be represented financially.” Goodwill vs. Going-Concern Now, it is important not to confuse goodwill value with “going-concern value,” as the two are definitely not the same. Going-concern … [Read more...]

A Deeper Look at Seller Financing When You Sell A Business

  A buyer typically has one of three ways to buy a business – Cash, SBA Finance or Seller Finance. Cash deals are rare and require a discount in the value to attract a cash offer. SBA Finance have pros and cons and can be expensive to obtain. Also, not all businesses can qualify for SBA or business acquisition loans. The bottom line is that most buyers don’t have the necessary capital or lender resources to pay cash and that is where seller financing comes into play. The fact is that seller financing is quite common in the sale of a business. It is estimated that approximately 70% of business sales involved some form of seller finance. In this article, we will take a deeper look at some of the key points to remember. Is Seller Financing a Good Idea? Many buyers feel that a seller’s reluctance to provide seller financing is a “red flag.” The notion is that if a business for sale is truly as good as the seller claims it to be, then providing financing shouldn’t be a “scary” … [Read more...]

Selling Your Company? Be Aware of These Four Potential Issues

We’ve outlined below a few unexpected aspects of the business sale process that can pop up.  Sometimes they severely impact the turnaround time of a sale.  But if you can understand these potential issues better, you will be better prepared to try to circumvent them.  Do You Have Time on Your Side?  It’s helpful to use a Business Broker / M&A Advisor who will assist with the filtering of prospects vs. “suspects” or “tire kickers”.  However, the inclusion of yet another party, in addition to both the business seller and potential buyers, increases the amount of time required to navigate the process. Sellers are typically unaware of the amount of time and documentation needed to compile the required Offering Memorandum.  Once completed, the seller must provide both the Business Broker / M&A Advisor and potential buyer more time to review and propose meetings and pricing.  In the interim, owners are faced with the challenge of keeping the business for sale … [Read more...]

Your Company’s Undocumented Worth

The business valuation is a major factor that influences the overall selling price of the business. Business appraisals are based upon a multitude of criteria and indisputable records such as comparables, projections, discount rates, EBITDA multiples, and more. While the appraiser may have all the information he or she needs, the business elements might be overlooked. That's why it's extremely helpful for business appraisers to first grasp the purpose of an appraisal prior to getting started. Unfortunately, the appraiser is often unaware of additional considerations that may enhance or even devalue a business' overall worth. Is There Unwritten Value? Business owners generally agree that prospective buyers are mostly looking for quality in depth of management, market share, and profitability. Though undoubtedly more subjective than documentation, figures, and calculations alone, information regarding key business elements such as market, operations, post-acquisition, value drivers, … [Read more...]

Service Businesses Perform Highest When It Comes to Sales

Recently, Business Brokerage Press performed a survey of business brokers across the country to see what sells at the highest rate, and what they discovered was very interesting. Retail business sold at 17%, food and drink related businesses at 14%, service oriented businesses sold at 25%, auto related businesses sold at 9%, manufacturing businesses sold at 16% and distribution businesses sold at 11%. Businesses for sale labeled as “other” sold at 5% and professional practices at 4%. What is a Service Business? Looking at this gathered information, it is clear that “service type businesses” are very hot and doing quite well. The range for what is considered a service type business is, in fact, rather broad. It encompasses everything from a dry cleaner and hair stylist business to a massage therapy chain or dental practice. Just so long as a business is providing a service and doesn't fall into another category, it falls under the “service oriented” banner. Food and Drink … [Read more...]

What is Really in the Mind of Your Buyer?

It is always important to try and put yourself “in the other person’s shoes.” This fact is of paramount importance when dealing with prospective buyers. Thinking like a prospective buyer could, in fact, be the difference between selling your company and not selling your company. It is easy to think that because everything is going smoothly with the sale of your business that the tough part is behind you. That may be true, but then again there could still be problems ahead. Issues can come up at a moment’s notice when either your prospective buyer or his or her advisor raises a red flag. Additionally, the larger the business for sale, the greater the complexity. The “Little Things” that Could End Up Quite Big Financial statements are of considerable importance. Quite often you’ll see contingencies regarding financial statements and/or business tax returns, so be ready and organized. Lease issues is another common category for contingencies and an area of concern. Sellers and … [Read more...]

Does Your Asking Price Truly Matter?

It is no great secret that sellers often aim high. The logic sellers use is simple, “I can always reduce my price.” While that is true, sellers do need to remember that if the asking price for your business for sale is initially too high, buyers won't even take a serious look. In short, your selling price must be bound by reality and what the market will bear. Pricing Does Matter When an asking price is too high buyers will simply move on. But in the meantime, you may have lost a qualified buyer that would have been very interested at a lower price. Pricing isn't a factor that should be played with, instead it should always be treated in as professional of a manner as possible. Instant Millionaire? Maybe and Maybe Not Some sellers want to become instant millionaires and sell a business for top dollar. Sometimes this is warranted and sometimes the numbers don't support lofty business valuations. Every situation and every business is different. It pays to be … [Read more...]

Strong Selling Points: Let Your Strengths Work for You

“Independent Business Owner” is a phrase with two meanings. Of course, it means being the owner of an independent business. But another way to look at “Independent Business Owner” is to let this phrase define the very personality of the person at the helm. Independent, Confident, Self-Assured, Strong-Willed. These are vital entrepreneurial attributes, but, ironically, they can sometimes work against the business owner when it comes time to sell. Since business owners are the type who know about selling — either products or services– and about making deals — haven’t they had to cope with suppliers, customers, and competitors throughout their business careers? — it’s not surprising that owners approach selling their businesses with these tried-and-true tactics and ideas. Sellers who have spent years building a business are often unaware of how completely different the process of selling a business can be. Savvy sellers, realizing the importance of a selling approach equal to this … [Read more...]

What Are Your Company’s Weaknesses?

Every company has weaknesses; the trick is to fix them. There is a saying that the test of a good company president or CEO is what happens to the company when he or she leaves. Some companies–on paper–may look the same, but one company may be much more valuable due to weaknesses in the other company. Not all problems or weaknesses can be resolved or fixed, but most can be mitigated. Fixing or lessening company weaknesses can not only significantly improve the value, but also increase the chances of finding the right buyer. Here are some common weaknesses that concern some buyers, causing them to look elsewhere for an acquisition. “The One Man Band” Many small companies were founded by the current president, and he has made all of the major decisions. Since he has not developed a succession plan or exit strategy, there is no one in place to take over if he gets hit by the proverbial truck. He is the typical one man band; and, as a result, the company is not an attractive target … [Read more...]

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Matt Coletta, CBB, CBI, is a Certified Business Broker and a Certified Business Intermediary with over 25 years of experience in successfully representing Business Sellers and Buyers in various industries. Matt is a Los Angeles Business Broker and represents Business Owners and Businesses for Sale throughout Southern California including: Los Angeles County, Orange County, Ventura County, West Los Angeles, City of Industry, Downtown Los Angele, Gardena, Whittier, San Gabriel, Upland, South Bay, Torrance, Newport Beach, Irvine, Brea, Anaheim, Long Beach, San Fernando Valley, Woodland Hills, Chatsworth, Sherman Oaks, North Hollywood, Northridge, Van Nuys, Burbank, Glendale, Pasadena, Sun Valley, Valencia, Santa Clarita, Palmdale, Ventura, Camarillo, Oxnard, Thousand Oaks, Simi Valley and other cities in the greater Southern California area.