SELLING YOUR BUSINESS FAQ

FAQ

Q: How Can I Prevent My Employees, My Customers And My Vendors From Knowing I'm Considering Selling?

A: Confidentiality is, perhaps, the most critical issue for a business broker. Virtually every business seller doesn’t want his employees, customers or vendors to know that his business is for sale. Key Advisory Group is very cognizant of this fact and in every step that we take we emphasize confidentiality.

 

Q: How Long Will It Take To Sell My Company?

A: There is a great deal of variation in the time frame, but, if we had to pick an average time, eight to nine months may be close. While this may sound like a long time, all of the facets of selling a company, including listing the business, finding buyers, interviewing buyers, writing contracts, due diligence and finally the closing process are all time consuming.

 

Q: I Have A Long Term Lease With My Landlord. Am I Going To Be Able To Transfer That?

A: Transfer of the lease is crucial to the success of the transaction. It will be almost impossible to consummate a deal unless the lease can be transferred. Leases will have a clause that defines the landlord’s rights regarding transfer. Frequently the seller will be required to remain as a guarantor of the lease and often there may be a charge by the landlord for the transfer.

Q: I've Taken A Good Bit Of Cash Out Of My Company And Not Recorded It, In Valuing My Business Do I Get Credit For That?

A: This is a difficult one, it is very, very difficult to prove to a prospective buyer that you have earned income that has not been reported. The only suggestion here is if you are not reporting income stop right now and maintain accurate records including all income. There are some businesses that do sell in spite of this fact.

Q: What’s Selling My Business Going To Cost Me?

A: Key Advisory Group has no upfront fees. We will analyze your company and go through the entire process with no cost to you. Your only obligation is when we find a buyer for your business. We traditionally receive our payment at closing.

 

Q: How Do I Determine What My Business is Worth?

A: The analysis of your business’ value or worth is another crucial function of the business intermediary. “The Market” makes the final determination of value. At Key Advisory Group, we have tremendous experience in valuing almost any business. Our estimates of value are not “certified business valuations” although we can provide this service for a fee. However, our experience and volume of comparable businesses allows us to give the business owner a very good estimate of value

 

Q: I Own The Property Where My Company Is Located, Do I Have To Sell That As Well?

A: This can be handled in many ways. Often the property is sold as a separate listing. However, the company owner will frequently retain the property, obtain a long term lease and earn an ongoing cash flow stream. Also, the property can aid a buyer’s ability to finance the business.

 

Q: I Keep A Lot Of Cash, Inventory, And Receivables In My Business, What Generally Happens To Those Items?

A: Most small businesses are sold with the seller retaining cash and accounts receivable. A working level of inventory is generally granted to the new owner.

 

Q: I Owe A Lot Of Money For Various Things That My Company Acquired Over The Years. What Happens To That Debt?

A: Most often, the company is sold free of all debt. This means that the former owner will be responsible for accounts payable as well as all long term debt.

 

Q: What Records Are You Going To Need From Me To Help Sell My Business?

A: The lack of good business records is the single most common reason for a business sales deal to fall apart. We can’t emphasize enough the importance of maintaining good books and records before selling. This includes accurate financial statements, cash register receipts or whatever records are necessary to prove income and expenses. Of course, current tax returns are a must. However, we are used to selling businesses that may have less than adequate records.

 

Q: What Are The Most Important Things That I Can Do To Get My Business Ready To Sell?

A: We have a list of the ten most important things that you can do to improve your business before selling, and you can review them on our website.

 

Q: How Far In Advance Should I Start Planning My Exit Strategy?

A: Today, no later. Even if you think you are not ready to sell your company right now you can’t start preparing too early. One of our experienced agents will be more than happy to meet with you to help you to start thinking about your exit strategy.

 

Q: Do I Need An Attorney And An Accountant To Sell A Company?

A: Buying or selling a company can be a complicated venture. While some companies are sold without the help of accountants and attorneys, we strongly recommend that both the buyer and seller engage professionals.

 

 

Mergers and Acquisitions (M&A)

At Key Advisory Group, we have a mergers and acquisition department consisting of a team of professionals that specialize in larger transactions.

 

What qualifies a business to be a M&A transaction?

 

There are several situations that could make your company qualify for our M&A department:

 

  • Your company has earnings greater than one million dollars. When businesses grow to this size, they become targets for acquisition by industry players.

  • Your business is too large for an individual buyer to purchase or finance through conventional methods. Once your company is worth multi millions, a single individual usually will not purchase it (most multimillionaires do not wish to work).

  • Your company is in an industry that is currently being “rolled up”. In some industries, strategic buyers that want to consolidate the marketplace will purchase even small businesses.

  • Your business is experiencing incredible growth. If your company is running out of capital because of growth, it may be a merger and acquisition target.

  • You want to grow your company and perhaps retain some equity. If that is the case, you will need M&A expertise.

 

The M&A Selling Process

Understand Your Goals. We meet with you and perhaps your advisors to understand your future goals. There can be many situations that could be present. Important issues include:

 

  • Your company is growing and you need capital.

  • Your company is growing and you need expertise to take it to the next level.

  • You would like to take some chips off the table.

  • You need to retire and there are no family successors.

  • There are family successors and they will need capital and/or expertise.

  • You have been approached by your competition to sell your business.

  • There is an industry consolidation happening.

  • The marketplace is changing and you cannot or are not willing to invest to keep up.

  • You’re tired and want to do something else with your life.

 

Whatever the issues are we need to understand them completely.

 

Review Your Options

There are many options that you must consider. Key Advisory Group can help you understand them all. Important issues include:

 

  • Is it time to sell?

  • Who are the buyers?

  • Strategic or financial?

  • Can I raise capital?

  • Can or should I go public?

  • Will I have to stay on and how long?

  • What are Key Advisory Group Fees?

  • Are their any upfront fees?

 

Valuation!

Key Advisory Group can help you understand how much the company worth! Important issues include:

 

  • Should I pay for valuations? How much? (Not 50k!)

  • What multiples apply to my business?

  • What methods or rules of thumb are used in our industry?

  • Do assets matter?

  • Do you apply gross sales?

  • What are the tax implications?

 

Create a Strategic Plan

Those who fail to plan, plan to fail. Key Advisory Group merger and acquisitions will set up a plan of action to take your business to market. Important issues include:

 

  • Which buyers to we approach first?

  • How do we get the best price?

  • How do we create completion for the deal?

  • How do we keep it CONFIDENTIAL?

  • How do we prepare the right marketing package? (Deal book!)

 

Network and Market The Sales

Key Advisory Group is one of the largest and most successful business sale organizations in the country! We work our merger and acquisitions differently! Important issues include:

 

  • The multifaceted approach. First Strategic buyers, then financial, then open market.

  • Create competition for the deal! To get the best price!

  • Qualify buyers

  • Reviews their qualifications.

 

Meet with Prospective Buyers

Key Advisory Group will attend most meetings with buyers and be present on conference calls. We will prepare beforehand. We will also have a post meeting to go over how the meeting progressed. Important issues include:

 

  • Meet with only the best buyers.

  • How to handle conference calls

  • How to handle face-to-face meetings.

  • Limited but important information.

 

Solicit and Review Letters of Intent (LOI's)

Key Advisory Group will work with you and your advisors to decide who is the best buyer, and which one will eventually close! Important issues include:

 

  • Who’s the best buyer?

  • Cash, notes, earnouts, stock, escrow?

  • Senior debt, mezzanine, secondary?

  • No shops and non-solicitation agreements?

 

Negotiate the sale

Key Advisory Group has an in house rigorous training program to refine negotiating skills. Most companies in the M&A process are professional buyers, you need an expert on your side. Important points include:

 

  • Negotiation never ends.

  • What should be in the LOI?

  • When should the definitive agreements be drawn?

  • How long for due diligence?

  • Who pays the attorneys or CPAs?

  • Is an audit necessary?

 

Due Diligence

50% of unmanaged deals die in due diligence. Key Advisory Group will quarterback this process and keep everyone in the game, Important issues include:

 

  • What information is necessary?

  • Where is due diligence done?

  • What to do when the buyers ask you to cut out the intermediary, your attorney, or CPA?

  • How not to get a "haircut" as the deal progresses?

 

Close the Deal

Once due diligence is over, then the merger and acquisitions process must be completed. Key Advisory Group will work tirelessly to get the transaction closed! Important issues include:

 

  • Review and negotiate definitive agreements.

  • Follow up with financial sources.

  • Arrange real estate sales or lease transfers.

  • Notify key employees at the appropriate time.

  • Help arrange wire transfers.

 

 

 

What You Should Know About Selling Your Business.

Selling your business is a major decision! You have devoted your time, money and energy to building, running and operating your business. It may well represent your life’s work. You may be deciding that now is the right time to sell, and you want the very best professional guidance you can get. This is when working in tandem with a professional business broker can make the difference between just getting rid of the business and selling it for the very best price and terms!

 

The following are some of the most common questions asked by sellers. The responses are based on both experience and knowledge. If you have any question that we have not covered, please don’t hesitate to ask us.

 

Q: What Can Business Brokers Do - And What Can't They Do?

 

Business Brokers are the professionals who will facilitate the successful sale of your business. It is important that you understand just what a professional business broker can do, as well as what they can’t. As your business broker we can help you decide on how to price your business and how to structure the sale so that it makes sense for everyone – you and the buyer. We can find the right buyer for your business and work with you and the buyer in negotiating and coordinating every step of the way until the transaction is successfully completed.

 

We will also help the buyer with all of the details of the business buying process. A business broker is not, however, a magician who can sell an overpriced business. Most businesses are saleable if priced and structured properly. You should understand that only the marketplace can determine what a business will sell for. The amount of the down payment you are willing to accept along with the terms of the seller financing can greatly influence not only the ultimate selling price, but also the success of the sale itself.

 

Q: How Long Will It Take To Sell My Business?

 

It generally takes an average of six to eight months to sell most businesses. Keep in mind that an average is just that. Some businesses will take longer to sell, while others will sell in a shorter period of time. The sooner we have all of the information needed to begin the marketing process, the shorter the time period should be. It’s also important that the business be priced properly from the start. Some sellers, operating under the premise that they can always come down in price, overprice their business. This theory often ‘backfires’ because buyers often will refuse to look at an overpriced business.

 

Q: What Happens When There Is A Buyer For My Business?

 

When a buyer is sufficiently interested in your business, we will help in the preparation of an offer or proposal. This offer or proposal may have one or more contingencies. Usually they involve a detailed review of your financial records and may also include a review of your lease arrangements or property ownership documents, operating procedures, or other pertinent details of the business. We will present the buyer’s offer or proposal to you for you consideration. You may accept the offer, or you may make a counter proposal. You should understand, however, that if you don’t accept the buyer’s proposal, the buyer can withdraw at any time.

 

We will submit all offers to you for your consideration. At first review, you may not be pleased with a particular offer; however, it is important to look at it carefully. It may be lacking in some areas, but it might also have some pluses to consider. There is an old adage that says “the first offer is generally the best one the seller will receive.” This does not mean that you should accept the first, or any offer – just that all offers should be looked at carefully.

 

When you and the buyer are in agreement, we will work with both of you to satisfy and remove any contingencies in the offer. It is important that you cooperate fully in this process. You don’t want the buyer to think you’re hiding anything. The buyer may, at this point, bring in outside professionals to help them review the information. When all of the conditions have been met, final papers will be drawn and signed. Once the closing has been completed, money will be distributed and the new owner will take possession of the business. As your business broker, we will work with you throughout the entire sales process

 

Q: What Can I Do To Help Sell My Business?

 

You can cooperate fully with all professionals that you may be using. A buyer will want up-to-date financial information. If you use accountants, work with them on making current information available. If you are using attorneys, make sure they are familiar with the business closing process. You might also ask if their schedule will allow them to participate in the closing on very short notice. Times\ is of the essence in any business transaction. The failure to close on schedule permits the buyer to reconsider or makes changes to the original proposal.

 

Q: What’s Selling My Business Going To Cost Me?

 

A: Key Advisory Group has no upfront fees. We will analyze your company and go through the entire process with no cost to you. Your only obligation is when we find a buyer for your business. We traditionally receive our payment at closing.

 

Q: How Do I Determine What My Business is Worth?

 

A: The analysis of your business’ value or worth is another crucial function of the business intermediary. “The Market” makes the final determination of value. At Key Advisory Group, we have tremendous experience in valuing almost any business. Our estimates of value are not “certified business valuations” although we can provide this service for a fee. However, our experience and volume of comparable businesses allows us to give the business owner a very good estimate of value

 

And, finally, your team of advisors must all be working towards the common goal of selling you business for the best price and terms available in the marketplace, and closing the sale as quickly as possible! Remember that as your professional business broker, we are on your side. Only by working closely with us can we best handle your business interests.

 

 

Things We Can Do For You.

Match buyers and sellers.

If you’re a seller, I can do the first phase of evaluation of buyers and only bring qualified buyers to you. If you’re looking to buy a business, i will ask you lots of questions and know exactly what you’re looking for. I may even be able to help you decide what kind of business might be best for you to purchase, given your resources, abilities, and interests.

 

Come up with a fair market value.

If you’re selling or buying you want a broker who has a strong knowledge of current market conditions. I can best give you an idea of what the market is currently paying for comparable business and where needed arrange for a formal business appraisal.

 

Facilitate the negotiating process

Since selling a business is at least as emotionally charged as selling a home, you’ll benefit greatly from a go-between who can handle all aspects of the transaction while keeping each party cool. I can speak more candidly to each party involved in the transaction that they could manage on their own.

 

Shield you from publicity.

I will be discrete about the sale of your business. Employees may get nervous if they learn that a business is for sale. Suppliers and creditors may also want to stop doing business with you if word gets out that you are selling.

 

Untangle red tape.

I will know the most efficient way to acquire all the necessary permits and licenses and will know how to locate financing and a reputable escrow company. This helps to eliminate many potential risks to you.

 

 

How You Can Help.

I look forward to working with you in finding a suitable buyer for your business. You, as the seller, are an integral part of the total marketing program. I would like to offer a few recommendations that will help in our marketing efforts.

 

First of all, it would be helpful if you took a good look at your business from the perspective of a buyer. Try to put yourself in the place of a potential purchaser of the business. What would you do to make it more attractive or saleable?

 

Obviously, the financial records of your business are critical to the sale, but how the physical features appear are also important. First impressions really count! If a potential buyer doesn’t like the appearance of your business, the rest of it may never get a chance. Here’s what you can do to maximize the potential of your business:

 

  • Keep normal operating hours. There may be a tendency to “let down” when you put your business up for sale. However, it’s important that prospective buyers see your business at its best.

  • Repair signs, replace outside lights, paint areas that need it, and above all else, make sure that the building and grounds are clean and tidy.

  • Maintain your inventory at a constant level. If you let your inventory slide, your business will look neglected. If anything, increase your inventory so your business will look busy. Inventory increases will be recovered in the selling price.

  • Remove items that will not be included in the sale or make a complete list of any non-sale items. Also, remove any inoperative equipment or items that will have no value to the sale of the business.

  • Look at your processes and make sure they are neat and efficient. These include financial systems, operating manuals, and procedures, and anything else of a paperwork or operating nature.

 

Our goal in the sale of your business is to maximize the net proceeds that you will get from its sale and to make the sale in a reasonable amount of time. Everything that we can do together will contribute to that effort

 

 

Business Valuations

At Key Advisory Group, we have business valuation experts on staff to help you value your business. We can meet with you and discuss your business’ worth value or we can be engaged to perform valuation reports

 

How much is A Business Worth?

Valuation is the number one question of all of our sellers when contemplating a sale, and of course, the concern of most buyers when purchasing a company.

 

Unfortunately, there is not an easy answer, and, more confusing, there are probably several answers. Why? Because business valuation is an art not a science

 

Valuations are subject to the appraiser’s judgment, skill and quality of methodology. There are several standards of value for businesses, i.e., different values

 

  • Fair Market Value- The price at which the property would change hands between a willing buyer and a willing seller when the former is not under any compulsion to buy and the latter is not under any compulsion to sell, both parties having reasonable knowledge of the relevant facts.

  • Intrinsic value- Stock values that investors would consider.

  • Fair Value- Legal standards to value. Often used in divorce.

  • Investment value or strategic value- The value to specific buyers. Could exceed fair market value.

 

Fair Market Value

For our purposes, let’s talk about fair market value. Essentially what a buyer would pay for your company in an open market.

 

Now, remember, this is a simplification of some very intricate valuation practices. There are valuation experts that specialize in providing very complicated reports as part of their business valuation services. Those reports are often used for IRS inquiries, legal proceedings, intricate financing and other reasons. A full valuation of a company could cost $10,000-$30,000. For small business sales, a valuation is usually not needed, and for the most part our simplified valuation methods are sufficient enough to determine your listing and approximate your eventual sale price.

 

There are three generally accepted approaches to valuing a company:

  • The asset approach

  • The market approach

  • The income approach

 

Asset Approach

Asset Approach values the assets of your business minus the liabilities. Some of the methods in this approach are book value, excess earnings method, asset accumulation method to name a few. However these values usually mean very little to the market value of most operating businesses. For the most part the asset approach does not properly represent the value of an ongoing business that has positive earnings.

 

Market Approach

Simply defined, it is much like a real estate comparable method. Like businesses in size and industry sell for similar valuations. There is the guideline publicly traded company method or the merger and acquired company method (private sale databases). There are many databases we can research to find multiples of gross sales and earnings to compare to your business. This method can be very reliable in most cases and is a strong indicator of value.

 

Income Approach

Your business is worth the present value of the income stream it will bring to an investor. There are several complicated methods including the discounted future earnings method as well as several capitalization methods. This approach is also a strong indicator of what a business with positive income is worth. These methods rely on future projections and growth rates to decide what the business may be worth. If that is true then why do most people multiply or capitalize historical earnings to arrive at a value? Because the assumption is the buyer will maintain the current income levels and they are a reasonable indication of future earnings.

 

Multiple of Your Past Earnings

Whew? What does all that mean? Simple. Your business is worth a multiple of your past earnings if a buyer can project those earnings will be maintained after the purchase.

 

What is the Multiple

Well first we must discuss what you want to multiply? Net income? EBITDA? Owner’s benefit? In small business sales (businesses earning less than 1 million dollars), we use owner’s benefit. Owner’s benefit equals the net income, plus depreciation, interest, and the owner’s salary and fringe benefits. In other words, all the income available to ONE owner if the company was debt free. EBITDA is used by larger businesses and includes normalized salary and benefit package for an executive to operate your business.

 

Okay, Now the Multiples

Well the multiples of owner benefit can run from less than one to about three. If your company is larger and your EBITDA is near or above one million, the multiples can run from four to six. Is this set in stone? NO! How do you know which multiple would be used for your business? Well, the multiple will rise along with the size, quality, and verifiability of your owners benefit. Bad books, dim future, negative growth and little profits equal a low multiple. Excellent books, bright future, excellent growth you will garner a high multiple.

 

Can all that mean nothing? Yes!

 

Buyers determine a business’ eventual sale price. Not valuation experts. That is why no one can tell you exactly what your business is worth. Not your banker, CPA, lawyer, broker, or mother-in-law. The only individual that will tell you what it is worth is the eventual buyer – and that will be a subjective evaluation. The same business will be valued differently by every buyer.

 

Lost Yet? Here's A Summary of Business Valuation.

Your business is worth the following:

  • A multiple of earnings compared to like businesses (gross sales or owners benefit times an industry multiple).

  • A capitalization of the net profit (Not Owners Benefit…you cannot capitalize owners benefit!) 20% to 50% or a simple multiple of owner benefit.

  • And if your business makes little or no money- Asset value is the only value. (Goodwill + Inventory + Equipment +etc.) Either sold as a whole or liquidated over time.

 

How Do you Narrow The Value Down?

Remember, many other things can affect the value of your company. Location, size, competition, growth rates, industry trends, quality of books, ease of transfer, control issues, time you have to sell, terms of the sale, leverage, what business broker you hire.

 

Once again, this is an over simplification of a very complicated subject. If you need a valuation, you should consult me, or someone familiar with business sales. Now that you know how businesses are valued, perhaps you can concentrate on increasing profits and your eventual profit in your business sale.

 
 
 
 
 
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