No. In today’s market, sellers either have to be willing to provide some financing or the business should be capable of obtaining a commercial loan for part of the purchase price. It is common for the purchase to be made using a combination of money from the buyer, financing from the seller, money from an investor group, and a commercial loan such as SBA. When considering how much cash you have to put into the purchase of a business, remember that you need to retain some to cover necessary operating expenses during the transition.

A lot of intermediaries or brokers fail to tell the buyer the importance of a well-thought-out transition plan. The success of the transition period can determine the success of the acquisition.

Most sellers are willing to provide some training. After a period of about one month of free training from the former owner, it may be important to have the option for more training and transition. This will normally require additional compensation to the seller. A training period of up to one year may be necessary to make the transition successful for certain businesses.

Generally, if there is a broker involved or the business is listed, the seller’s broker is paid by the seller not the buyer. Some seller’s brokers have cooperation arrangements where they share the commission with the buyer’s broker representative but not always, find out if this is the case with your broker if you are using one.

Legal fees can be significant. If you dont have any experience in business acquisitions then we suggest you partner with us on acquisitions.

The way that works is we do a 50/50 joint venture where we will find the deal, evaluate the deal, you will put up the downpayment, we will get either the seller to do seller financing on the deal or we will have you obtain an SBA loan to finance the remaining amount of the business.

If we sign on the dotted line for the SBA loan as well then the split is adjusted to 65% us and 35% to you for us carrying the weight. We can even set it up to buy you out in 3-5 years if you wish for a set amount return. We will also split the FF&E Tax deductions in accordance to ownership percentages which we are happy to give the higher pecentage to our clients who are in tax advisory services with us.

You will be responsible to pay any other fees needed such as attorney fees for contracts as we will do anything we can to keep legal fees down. All legal fees will be paid by us and collected from you. Invoices will be sent out in accordance.

Due diligence, should we need to fly to view the business and meet owners ect, that will be on our own dime. 

There is a lot that goes into buying businesses and its a risky business simply looking at deals which is why we share in the risk with our clients and do everything we can to eliminate as much risk as possible. There is no better feeling that completing a successful acquisition and seeing the fruits of everyone’s labors not to mention getting a very nice tax deduction for buying a cash flow stream.

Buying or selling a business is one of the most complex transactions that you are likely to encounter. It is possible to do it without professional advisors, however, we strongly recommend that both buyers and sellers have their own legal and financial advisors, who have experience in the purchase or sale of a business, for the transaction.

We have seen many buyers that did not use professional advisors who felt, in retrospect, that they agreed to terms that caused them difficulties after the purchase.

For example, some have agreed to payment terms that were unrealistic to be funded by the businesses operations; others have failed to properly understand the need for an adequate training and transition agreement. Buying a business is best done with a team of trusted advisors.

Bear in mind that any advisor will have his or her specific point of reference about the transaction. You will have to make decisions. However, when the agreements have been completed, a good way to find out if they are done well is to ask the advisors if they would sign them. This is why we are always willing to JV Partner with our clients so that they are getting a great deal and so are we vs charging them more and more money that could go into a cash flow stream that benefits everyone.

Professional business intermediaries and business brokers have experience with many different deals and types of people involved in the process. They also have access to and working relationships with a wide selection of other professionals that may be needed to complete the acquisition and help make the business successful after the purchase. 

Business brokers are professionals who can help advise you of the value of the business and the financing options that may be available, and help you avoid common pitfalls in the buying process.

Although we are not considered an intermediary or business broker we have the experience to help our clients and partner with them on deals that make the most sense vs just giving them advice. We will help ensure they obtain a great deal by utilizing our resources, relationships and by being their JV Partner.

Professional business intermediaries and business brokers have experience with many different deals and types of people involved in the process. They also have access to and working relationships with a wide selection of other professionals that may be needed to complete the acquisition and help make the business successful after the purchase. 

Business brokers are professionals who can help advise you of the value of the business and the financing options that may be available, and help you avoid common pitfalls in the buying process.

Although we are not considered an intermediary or business broker we have the experience to help our clients and partner with them on deals that make the most sense vs just giving them advice. We will help ensure they obtain a great deal by utilizing our resources, relationships and by being their JV Partner.

In general, the value of a business is what a buyer is willing to pay. It doesn’t matter what the seller’s opinion is, or that of an advisor, valuation specialist, friend, business broker or someone who just sold a similar business.

Most valuations are based on the principle of how the business will pay for itself. However, strategic buyers are more concerned about items such as the number of subscribers or customers, types or placement of facilities or perhaps a specific product that they want to add to their existing business.

Alot of the value has to do with the businesses net profit and cash flows along with the industry as every industry is different and has different multiples.

There are many factors that should be considered. First and most importantly, to be successful in a small to medium size business, you as the new owner must have a passion for the business. Additionally, your available financial resources will enter into determining the size of the business. 

It is possible to buy larger businesses with additional equity partners in the venture. But, keep in mind that, with partners, sometimes control is given up to obtain their investment. With us we work together to make the business work. We understand that you are operating your own business and cant take on the responsibilities of running another business and that is why  we only buy businesses that can have professional management in place.

A careful analysis of your skills is important identifying a target industry or business. Your background, next to your financial capabilities, is an important consideration when deciding the correct direction for your search if you are to make this your first business.

When you look at a business, you should feel that you can do better than the current owner. If you don’t feel that way, you will likely pay too much for the business and be dissapointed. If its your first business then look to buy something that you will love to do, something that excites you so you are excited to get in there and run a successful company.

The startup phase of a business has the highest failure rate. An existing business has a track record and a customer base. The seller, unless there has been a death or other medical reason, will be willing to help train a buyer over a reasonable period of time. 

Statistically, the failure rate of small business in the first 3 years is around 80%. Obtaining financing for a startup business is also much more difficult than for an existing business that has historical financial information.

In today’s financial market, most sellers are willing to provide some financing to qualified buyers, which may be all the financing necessary. In other instances, the seller’s willingness to help finance the purchase provides extra stability for other potential lenders.

Knowledgeable market watchers estimate that at most times there are approximately one million businesses for sale. Some are never listed to the general public and will trade hands without any listing for potential buyers to see.

The reason why people are selling boils down to several key things.

1. They are looking to retire: There are over 3 million businesses that have baby boomers that are looking to retire in the next 1-3 years. The opportunity is wide open for the taking.

2. Medical issues: There are those who have medical issues and can no longer run or operate the business who need out. These distressed sellers maybe willing to make a very good deal to the right buyer due to their urgency and need to get out due to medical reasons.

The seller will review your offer and either decide to accept, counter or reject the offer. Please go to ”What Is the Buying Process” tab the website to see the steps involved in the purchase of a business. After the terms have been agreed to, the due diligence process starts. This is where the buyer verifies that the seller’s representations are accurate.

Also, at the same time, the attorney(s) should begin to prepare the closing documents. Note that many brokers believe that hiring a transaction attorney to draw up the documents, which are then reviewed by both buyer’s and seller’s attorneys, is the most efficient and cost-effective process.

Some buyers prefer not to start the legal process until the due diligence has been completed. This may or may not be wise, depending upon the time frame for closing the transaction. The prevailing experience is good deals close quickly and bad deals linger.

Brokers are usually compensated by a commission (normally called a success fee) which is based on a percentage of the sales price. However, every situation is different, and some brokers charge a consulting fee in addition to a commission on the sales price of the business.

For businesses that sell for $1,000,000 or less, the commission rate is usually 12%. For businesses that sell for more $1,000,000, the rate goes into a sliding scale where at $50,000,000 the rate will go down to around 2%.

For businesses with real estate for sale, depending on the real estate laws in your state, there may be two separate listing agreements. If the seller has a prearranged buyer the rate is negotiable.

LISTING AGREEMENT

Business brokers require a listing agreement to begin searching for a buyer. All the terms are disclosed in their agreements.

An exclusive listing allows brokers to use more resources to find the right buyer for the business. Fees are usually based on the sales price and payable only if and when the business is sold.

Listing agreements are generally for a minimum of one year. The listing agreement will be a legally binding document. Because of this the seller should have an attorney review it before signing the agreement.

WHAT IS A TAIL?

Practically all listing agreements have tail provisions. What is a tail? The tail on an agreement means that once the agreement has ended, there is still a clause that says if you sell to anyone within 18 to 24 months that the intermediary introduced you to, you still owe the commission or success fee.

COMMISSION SHARING

Business Brokers will cooperate and share commissions with other brokers/intermediaries in some proportion under pre-arranged terms. These terms and splitting of the success fee will be negotiated at the time of the arrangement.

If you are selling a business on your own and need our help, let’s discuss the terms of the deal and figure out what it would cost to have us as your consultant. Otherwise, we can partner and help ensure the deal goes smoothly by bringing in our own legal team.

Smaller businesses that are priced correctly can sometimes be sold in as little as three months. Most of the time even with correct pricing it takes a year or longer to sell the business. Planning ahead is everything. This is something we cover when doing tax advising with you. We need to know when you are looking at selling so that we can begin to build up your profits and reduce deductions so that you can show you are profitable and can sell for maximum value.

Although this may sound like a lot of time, the complexities involved in the transaction, including listing the business, finding potential buyers, interviewing potential buyers, writing contracts, obtaining financing, due diligence and the closing process are all time consuming.

Each step can cause delays if the buyer and the seller are not willing to compromise. Owner financing can help speed up the process. Buyers often feel that if the seller is willing to finance a portion of the sale, the seller has the confidence that the business will be able to make the payments. If a seller is willing to accept 40% or less as a down payment more buyers will be interested.

Some landlords will allow for the transfer of the lease. Other landlords will do a lease assignment, but still hold you as a guarantor for the duration of the lease.

If the buyer is obtaining commercial financing, the lender will require the lease to be transferred to the new buyer. This is a critical component of the transaction.

We recommend businesses report all income and comply with all tax laws. Buyers place high confidence in financial results that are supported by filed tax returns.

Finding the buyer is an important part of a broker / intermediary’s role. However, there is a significant amount of work to be performed in advising and closing the transaction. Because you have a buyer, the fee is negotiable.

This is a very complex question. In general, the value of a business is what a buyer is willing to pay. It is not the value told to you by an attorney, an accountant, a consultant, or someone else.

Pricing your business too high will scare away potential buyers and significantly lengthen the time to sell the business. Selling it at too low a price is almost as bad. It is important to have a fair price with reasonable terms and a willingness to be flexible.

Although it is not required, it is strongly recommended. Setting the value of a business is one of the first steps in the process.

Business values are based on the ability of the business to generate cash flow, its assets, its reputation, and the relative risk of the business. A valuation can help assure you that you are selling at a fair price.

Most business buyers want to know an asking price. To estimate a reasonable asking price, many brokers use industry-accepted methods to help the seller determine the best-estimated selling price.

If a price is too high, the business will not sell, if it is too low then you, the seller, did not get enough money for the business. Not all business have an asking price.

In some very hot markets, the lack of an asking price may get some bidding going. However, in these hot markets, the buyers are always aware of the market value. And the buyers know that the seller has a price in mind.

No, in fact separating the business from the real estate is a best practice. Most buyers want a long-term lease on the property.

They may request an option to buy at the end of the lease. If a buyer is obtaining commercial financing for the purchase, the lender will most likely require a long-term lease, unless it is shown that the location is not desirable for the buyers planned business.

Some buyers will have excess capacity in their existing location and not want the property. This can all be negotiated in the terms of the deal.

In most situations, cash and accounts receivable remain with the seller. However, this may be a part of the sales price of the business or has been negotiated in.

If the value of the business is based on cash flow, the working capital taken out of the business will affect the value and astute buyers will make adjustments to the purchase price.

In financing businesses, lenders consider the difference between inventory and accounts receivable a simple timing difference. Some sales involve the use of working capital formulas that have adjustment clauses tied to the seller financing notes to adjust for changes that were not anticipated by the buyer. Again something to be open about.

Most buyers require that the business be debt free when it is purchased. Consequently, at closing most debts are required to be paid off by the seller using the buyer’s purchase payment.

Additionally, some type of guarantee of undisclosed liabilities will be required of the seller by the buyer. Sometimes there are provisions for offsets against the seller-financed notes for changes in working capital or other undisclosed liabilities.

A lot of information will be required. Historical financial statements, copies of leases, notes payable, equipment leases, asset lists, accounts receivable aging and many more documents will be required.

Additionally, some narrative description of the business, the reason for selling, profiles on employees and other documents will be required. We can give you a list when the time comes. Good records will make the due diligence process go smoothly.

If you plan on selling your business in the future – today is the day to start planning and preparing. The longer the time frame the better the result will be.

We like to see 3-4 years of proper planning and begin increasing your profits by not reducing it as much and showing year or year gains in a unique way planning to get you the most money for your business.

Working with a team of advisors that have experience with getting a business ready for sale would be the best first step. They can advise you on potential problems in your business and possible solutions to buyer objections.

The more time you have to accomplish these steps the better off you will be.

Work with us or a business broker / business intermediary, your CPA or accounting firm, your attorney and your insurance agents.

Be sure to ask each about their experience in the process of selling your business. In general, some of the steps will include:

• Increase your sales volume every year
• Develop a management team that can run the business without your involvement
• Make sure your accounting / financial records are accurate and strong
• Remove family members from the business
• Eliminate or reduce personal perks from business expenses
• Dispose of unproductive assets or idle assets
• Create a sales force that can operate without your interaction
• Diversify the customers
• so that you do not have any one customer with more than 5% of your annual revenue
• Take care of repairs and maintenance issues as soon as possible
• Make sure your insurance coverage will be acceptable to a buyer.

It is not possible to give you a set formula that will tell you how much you will owe until you have a set confirmed sealed and delivered purchase price and closed deal.

There are some things you can do to legally reduce the amount of taxes you will owe.

Consulting with with us on this is an important step in helping figure out the best way to legally sell your business. In many cases having your asset protection structures setup with our Legacy Wealth Trust can eliminate capital gains taxes.

However, if you choose to seller finance, that shall be treated as regular income and will need a different strategy so it all depends on the terms and conditions of the sale.

Unless your business requires some specific skill or credentials, a buyer can be found. The business will need to have cash flow that will allow a buyer to get a return on their investment and obtain reasonable compensation for their work.