Frequently Asked Questions

Sellers/Buyers Frequently Asked Questions

Review each of these key questions. There willl be more.  In doing so you’ll get a better understanding of the preparation, the process and the considerations.  Gush & Associates LLC will deal with each for every client.

 

Q. Should I sell my Company?  Why am I considering it?

A. Selling a company requires a commitment by the owner. It’s about preparation and process.  Even if you don’t sell, completing the preparation and understanding the process will help you immensely in making future decisions.  The most common reasons to sell are:  Retirement. Burnout. Family crisis. Other interests.  Other opportunities. Buyers will ask. Prepare your answer. And, each may require a different selling strategy, deal structure and exit plan.

 

Q. Have I considered selling before?  Why? What do I know about selling a business?

A. The common answer might be yes, I’ve thought about selling but don’t know how to go about it. Contacting a business broker might be the best approach. Having your attorney or accountant sell it is not advisable. Would you hire a broker to do legal work or financial work? No. Or you shouldn’t. Lawyers and CPAs don’t do prospect searches.  They are, however, essential to the process and should always be consulted.

 

Q. How much of the business should I sell?

A. You could sell all, a minor share, or a major share. Each has consequences. The first two transfer control. The third does not.  Match up your choice with your goals. Do you want to lessen your ownership risk, lessen your workload, and/or continue working ... but transition out of the business gradually?  This area can get very complex and involved. It needs close scrutiny as deal terms can vary greatly.

 

Q. If I am not the sole owner of the business, how should I proceed?

A. Good question.  If it’s your spouse, you will need his/her signature to close. Know that in advance.  If other partner(s) you should consult your attorney with regard to legal issues and company structure issues. Your broker or M&A advisor will need to manage the selling process with this in mind. Not disclosing will only waste everyone’s time.

 

Q. Who should I bring on board to advise me through this selling process?

A. Our best recommendation is to engage a business broker or M&A advisor, your CPA and your attorney.

 

Q. How much time do I need to prepare my business for sale?

A. Complicated question. It could take 3 months or 2 years. It depends on many factors, fixes, and type of issue. Are they tax issues, legal issues, inefficiency issues, personnel issues, accounting or financial reporting issues, management issues, client base issues, vendor issues, growth issues, etc.   After looking closely at the company’s strengths and weaknesses each can be assessed in time to fix and impact evaluated. Some may need to be done, and others simply identified.

 

Q. How long should I expect the sales process to last.

A. While there are no guarantees, each business is unique. Expect the process to be anywhere from 6 months to 18 months.  Assuming a thorough marketing effort companies with exceptional value will move more quickly. Also, those with realistic pricing and showing growth are more attractive too.  Once an LOI is accepted, due diligence can take 30 to 60 days, as will financing, if necessary.

 

Q. Can you break down the time parameters in the sales process?

A. Preparation and documentation may take 30 to 60 days depending on readiness of the business; the entry to market and buyer contact 30 to 60 days to reach a significant portion of prospects; and negotiation 30 to 60 days and due diligence 30 to 60 days.  That makes it a typical 9 months process.

 

Q. What is my business worth?

A. Get a Complimentary Opinion of Value from a business broker or M&A advisor. Most will offer it. Without reviewing initial financials it’s very hard to put a value on a business accurately.

 

Q. Is the price of the business fixed or negotiable?

A. It should always be negotiable. There are many elements to a deal structure, and trading off one for a change of price may be necessary and attractive.  For example, a seller carry, or offering the buyer a note is an attractive element and can result in a higher price.

 

Q. What if my business value is very low?

A. A good business broker or M&A advisor will identify those challenging problem issues and their impact on selling the company and price.  He should show the impact on price if you were to fix them. It may be advisable to do so and delay the sale for 6 months to several years, in order to maximize return to you, the owner.

 

Q. Should I sell the business myself or hire a broker?

A. Good question.  It the vast majority of cases, hire a broker and do not try to sell yourself.  

 

Q. How much will it cost me to sell my business?

A. Engaging a broker M&A advisor usually has several fees:  upfront and success fees due at close. The size of the business affects fees too.  Upfront preparation fees range from $0 to $10,000 for small businesses generally under $25 million.  Success fees due at close of escrow can start at 12% for businesses under $500,000, 10% for those under $1 million, and scale down to 8% for the 2nd million, 6% for the 3rd million and thereafter.  So, one can see that most of the remuneration to the broker or M&A advisors comes when the business is sold.  

 

Q. Are there other fees to selling my business?

A. Yes. Anticipate legal fees, title closing fees, and CPA or accountant fees.  They can add another $10,000. Some brokers, like Gush & Associates LLC will credit back your cost of these fees paid out of broker success fees.  This is to encourage your use of lawyers and CPAs to assist you and protect you through the process.

 

Q. Are there other engagement issues to consider when engaging a broker M&A advisor?

A. Yes. Review the contract closely. Look for broker’s commitments to listing and proactively marketing the business. Also, look at the term of the contract and cancellation options, as well as, ready willing able clauses that require the seller to pay broker regardless of closing the transaction. Gush Associates LLC offers sellers 30-day cancellation clauses with no penalties, as well as, success fees only paid out of successful close of the sale transaction. Don’t get tied into a non-cancelable contract for 12 months and don’t agree to paying commissions if the transaction does not take place.

 

Q. Who should I bring on board to advise me through this selling process?

A. Our best recommendation is to engage a business broker or M & A advisor, your CPA and your attorney.

 

Q. How long should I expect the sales process to last?

A. While there are no guarantees, each business is unique. Expect the process to be anywhere from 6 months to 18 months. Assuming a thorough marketing effort companies with exceptional value will move more quickly. Also, those with realistic pricing and showing growth are more attractive too. Once an LOI is accepted, due diligence can take 30 to 60 days, as will financing, if necessary.

 

Q. Can you break down the time parameters in the sales process?

A. Preparation and documentation may take 30 to 60 days depending on readiness of the business; the entry to market and buyer contact 30 to 60 days to reach a significant portion of prospects; negotiation 30 to 60 days and due diligence 30 to 60 days.

 

Q. What will my key negotiations points be?

A. Consider some of the value components of your business. For example, businesses with a high percentage of recurring revenues, growth, highly profitable and a diverse client base are strong negotiating points.

 

Q. Should I expect all cash, big cash upfront at close, or is payment over time acceptable?

A. All three can be acceptable and attractive. Cash is king, but may restrict the purchase price to a level won’t like. A bigger cash deposit is attractive. An installment payment can also be attractive. It usually results in a higher sales price, spreads taxes out over the length of the loan and can be attractive from a take over default.

 

Q. How will the buyer price my business?

A. For most businesses over $2 million, the buyer is likely to have engaged a professional appraiser, business broker or M & A advisor or have experience themselves with pricing and valuation models. So, it is wise for you, the seller, to do the same. If your business has not be prepared for a sale, most likely it will not sell, or get a very low-ball price offer.

 

Q. Is my business ready to sell?

A. The answer is most likely no. It requires a lot of work to prepare a business for sale. All of the following needs review and attention: orderly financials, audited financials, completed taxes, developed management team, large client base, requiring revenues, consistent company growth, growing revenues, profitable and so forth.

 

Q. Is now a good time to sell?

A. There are better and worse times to sell a business depending on the market conditions. Recession, lack of financing and specific negative industry conditions make it tougher to sell. A professional can help you with quantifying how the market may affect price. The timing of your sale may or may not be flexible. Nonetheless, you will certainly need to prepare the business for a sale to maximize value.

 

Q. What will I do after I sell my business?

A. Good question. Maybe you want to leave it behind as quickly as possible and already have a great plan to do something else. Or maybe, you have not put thought to this and may wish to say partially involved. If so, all that needs to be built into sale strategy early on.

 

Q. Can the business run without me?

A. An owner involvement in the business can affect the value of the business. It will be a detriment to buyers that seek a company with a self-sufficient management team. Also, many buyers seek to replace the ownership and require a management team in place to run the company. Purchasing the company is seen more as an investment.

 

Q. Would I be willing to stay if the buyer requests me to?

A. Some buyers do wish the owner to stay if the owner runs the company or performs crucial functions. Again, the buyer may seek an investment as opposed to an operating owner position. It’s important to specify one’s interest and plan according in the early stage of the marketing.

 

Q. What would be potential deal breakers?

A. Poor financials, legal problems, pricing way out of the norm and an incomplete document package can turn away buyers quickly.

 

Q. Do I understand the sales process?

A. If you answer no, then it’s even more important to meet with a business broker or M &A advisor. Understanding the process will help prepare you to be successful.

 

Q. Who would be my perfect investor / buyer?

A. Do this exercise. It will help define your goals and objectives, as well as, the needs of the business with regard to type of buyer.

 

Q. Is my staff operating at their best?

A. This will come out in the due diligence and could be a factor in the purchase. It could be a positive or negative.

 

Q. Does my business have a good traction that will ensure future sales and profits?

A. This speaks to the buyer’s interest in growing the company and insuring that his investment will pay off.

 

Q. Is there a good management team in place to lead the business after the sale?

A. A strong management teams increases potential buyer pool by including investors that might have a non-operating agenda.

 

Q. Do I know who the best buyers might be, by type and company?

A. Often, the business owner knows his market, competitors and vendor distributor change companies. Each may be prospective buyers for the business. This is a good place for the broker or advisor to start.

 

Q. How much involvement in the business sales process should I have?

A. The business owner should focus on the day to day running of the company and keep it on track. Letting the company revenues slide could be the kiss of death for the sale. Let the broker do the work. The seller will get much more involved during the negotiation and due diligence, hopefully leading to a close not long after.

 

Q. What roles do I play as owner of the company, in addition to overseeing the running of the business?

A. Am I the sales manager, financial manager, personnel manager or billing manager?  If the owner does play many roles, the buyer may need to replace him with additional personnel and that will affect the net income and price.  Could the business grow more quickly by hiring additional managers?

 

Q. What are my plans after I have sold my business?

A. Think through this one, because it may impact the sales structure, deal terms and exit strategy. It’s best to flush this our early on in the sales process. For example, if you want to stay involved, structured notes, earn outs and ongoing consulting and employment contracts become very viable.

 

Q. What if the sale of the business does not provide enough for me to retire?

A. Good question. The structure of the sale may help with that issue via a structured note or employment consulting agreements. I also have been trained as an investment advisor and can raise a number of questions for you, the seller, to consider post sale. It is part of the exit plan.

 

Q. What are the obstacles to selling that I need to address?

A. Legal issues, collection issues, bad debts, tax issues, personnel issues, spouse or partner issues, etc., can all create obstacles to selling the business.

 

Q. How will the sales process affect my business?

A. Will having a new owner help or hurt my business, affect morale, impact personnel, affect sales revenues, or impact clients? Consider all of these issues and more, so that they can be addressed and dealt with before entering the selling process.

 

Q. Must I provide all the required information that the buyer will request during the due diligence process?

A. The broker M & A advisor can provide a list of what information is usually required to be provided in due diligence. The owner will need to provide that in due diligence. This should be discussed well before going to market and in the aggregation of documents stage.

 

Q. Do I have to sell quickly – and why?

A. Be honest with yourself when considering how soon you need to sell. Once identifying the reason, the broker can then create a plan to get you through the process taking those issues into consideration. For example, if burnout is the reason, hiring a manager to keep the company on track might help during the sales process. In every case, disclosure is the best medicine, because it all comes out in wash of due diligence.

 

Q. Am I willing to change elements of my business to make it more attractive?

A. When we look at the value propositions we are looking at the strengths and weaknesses of the company. Once identified and solutions offered, are you willing to address them?

 

Q. How long and at what cost? And, how will that affect the timing and sale and price of the business?

A. A good broker will assist and advise you on working through these issues.

 

Q. Do I have any tax issues I should deal with before selling?

A. Good question. Tax liabilities and prepaid taxes should be dealt with before selling. Your tax attorney or CPA can address them. Disclose to broker also. Disclosing to prospects or resolving before selling process is advisable.

 

Q. Is my company in good order? Is it ready to be scrutinized closely by a buyer?

A. You know the company inside and out. Answer honestly. If you have questions, ask your broker, attorney and CPA. They each can help address it and identify areas to focus on.

 

Q. What is confidential inside my business? How do I protect it?

A. Systems, processes, client lists, secret sauces, patents, trademarks and intellectual property and more are all confidential. They need to be protected. Of course, your broker M & A advisor will already have signed a confidentiality agreement or non disclosure agreement, as will each buyer prospect. Nonetheless, a procedure should be in place throughout the sales process to reveal information stingily and only as necessary to the process through prospect, LOIs, due diligence, etc.

 

Q. If I don’t sell all my business, what’s most important to look for?

A. A good fit with your partner. It’s vital. Nothing else is as important as a partner with a good fit, aligned goals, common objectives, and a great working relationship.  There is a lot of literature about failed partnerships. Beware.  Simple, concise, black and white deals are best. Consult your attorney about structure and terms and pre-contracted solutions. Problems always arise.

 

Q. Should I tell my employees about the sale?

A. That’s a tricky one. Key employees may find out, and if they do, you don’t want them leaving before the sale. Your trust and your relationship with them most likely requires you to confide in them. Conversation, employment contracts and assurances may be necessary. It may be advisable to discuss early on and plan for the transfer. Each will want to understand how they will be affected going forward.  No buyer wants a mass exit upon sale, nor do they want to lose key employees.

 

Q. Can I keep it quiet and not tell employees of the sale?

A. The broker can put measures in place to keep the process confidential. That should be a matter of common policy. More specific issues are best dealt with company to company. Role of the owner, number of key employees, managers, etc. all come into play.

 

Q. How do I know the buyer has the money to afford the business?

A. The broker / M&A advisor should perform some type of due diligence and pre-qualification on the prospect. It’s not a guarantee, but it will weed out most prospects that are unable or underfunded.

 

Q. Should I sign a non-compete?

A. They are typically part of the process. Yes, consider it, since it usually necessary. However, it should be drafted to accommodate your future needs, as well as, pay you for the benefit to the buyer.

 

Q. Do I need and attorney or title, or escrow company to close?

A. Yes. Yes. Yes. My advice is to always use an attorney, title company and escrow company.

 

 

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