Selling your business will be one of the biggest decisions of your business life. It also takes a lot of time. Hiring a professional Business Broker, will help you in the process. Managing a business and selling a business are completely different skill sets. Selling a business requires extensive time, knowledge, confidentiality, deal forms, salesmanship, marketing, negotiating skills, and much more. I have documented my own process into 105 steps that most Business Brokers use to get the deal to closing. I consider these 105 reasons why you should hire a Business Broker to sell your business or help you purchase one. We do not all follow the same steps, but the basic process is the same.
Four Questions to Ask Yourself Before Purchasing a Business
Truly understanding a business is much like understanding the condition of a car. It is necessary for a skilled mechanic to “pop the hood” to access the true condition of a car. In much the same way, you and your team of experts need to “pop the hood” of the business in order to understand the business’s long-term health and viability. Here are four things to consider before signing on the dotted line.
Will You Enjoy the Work?
Owning a business, especially if you are planning on being an owner-operator, can be a demanding path. You will likely have to log many hours, especially in the beginning. For this reason, you’ll want to select a business that you will enjoy owning.
Life is too short to own a business that you would not want to be involved in. Importantly, if you do not like the business you own, the odds of facing burnout and losing interest are higher. It goes without saying that these kinds of obstacles can dramatically harm your business. Think long and hard before selecting a business to buy, as it is a decision that you will have to live with for years to come.
Did You Examine the Business Plan?
A second factor to consider is that there is no replacement for a good business plan. When you are considering buying a business, you’ll want to dive in and understand every aspect of the current owner’s business plan. If the business plan has major holes or just doesn’t seem to be adding up, you should move on.
Do You Understand the Financials?
Similar to understanding the particulars of a business’s business plan, it is also critical that you have a very precise and clear view of a business’s financials. You should look over everything from profit and loss statements to tax returns and more. It is a smart idea to consult your accountant and a brokerage professional regarding what financial documents you should review. Before you buy a business is the time to understand every small detail of a business’s financial health, not after.
How is the Business Performing?
A fourth factor to consider when evaluating a business is the business’s overall performance. It is possible for a business to have a good business plan (at least on paper) and strong financials and yet it could still have a less than stellar future. Oftentimes, the true health of a business lies beyond the business plan and the current financials.
You’ll need to know about a wide variety of factors including how vulnerable the business is to competition, changes in market forces, the status of key management and employees, the relationship with key suppliers and customers, and any pending litigation. When buying a business, you simply can’t afford to overlook any area.
If you keep an eye on these four key areas, and work closely with experienced professionals like business brokers or M&A advisors, your odds of finding the right business for you will skyrocket. Owning a business that you love will greatly increase your chances of success, so don’t underestimate the emotional factor in the equation.
Copyright: Business Brokerage Press, Inc.
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Take These Steps Before Buying a Business
If you’re buying a business, you might be feeling overwhelmed about all the details that are involved, especially if it’s your first business. Buying a business is certainly no small task, and that’s why you’ll want to dive into the process headfirst and make sure that you’ve carefully examined the business.
Here are some of the most important elements to consider. While some of these aspects don’t immediately come to buyer’s minds, they should be high on your list of considerations.
Legal Documents
Reviewing legal documents might not seem like the most enjoyable task, but this activity should be one of the first things you will want to do before buying a business. Most worthwhile businesses will have a long list of legal documents to show, ranging from documents showing trademarks and copyrights to consulting agreements.
Tax Documents
When it comes to paperwork, tax documents are obviously also a necessary element to review. Some things that you should be watching for are forms that do not adhere to the IRS rules. It goes without saying that you don’t want to be the one taking responsibility for a previous owner’s error.
Business & Retirement Documents
The list of documents you’ll want to review doesn’t end there, as you’ll also want to check into retirement documents such as balance sheets, investment statements, and income statements. You’ll want to ensure that all of the qualified and non-qualified retirement programs run by the business are up to date. You might need to check the parameters of the Department of Labor’s rules.
Work with a Business Brokerage Professional
Your business broker or M&A advisor will take you through the due diligence process to help you make sure that all aspects of the business have been reviewed thoroughly before you sign on the dotted line. Be sure to work with an experienced individual who is proactive when it comes to making sure all of your questions have been answered to your satisfaction.
The items on your to-do list might seem overwhelming at first, but remember that a lot of focus and effort now will save you a ton of hassles and issues later. And you might end up dodging a bullet by spotting a serious issue that causes you to change your mind about a business. Always be sure to protect yourself and your best interests.
Copyright: Business Brokerage Press, Inc.
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105 Reasons to Use a Business Broker to Sell Your Business
Selling a business is not like selling a house. The average business takes 6-12 months to sell and involves a lot of different steps. A Business Broker can help present your company in the best light to maximize the sale price. He or she understands the key values that buyers are looking for and can assist in identifying changes that can lead to a better selling price. Every business is different, with hundreds of variables that have an impact on the value. Business Brokers have access to business transaction databases that can be used as guidelines or reference points.
Deal structure is also especially important as well as the financing. A Business Broker will be able to help negotiate a structure that is beneficial to both the buyer and seller. In addition, understanding the SBA lending rules takes a lot of time to learn, and most business owners do not know all the available options like a business Broker. A deal must be structured in a way that will qualify for lending if lending is involved.
Since the Business Broker’s sole function is to sell the business, there is a much better chance that a deal will be closed in less time. The faster the sale, the lower the risk of employee problems, loss of confidentiality, and customer defection.
A business owner should be aware that there are a variety of valuation methods available to a Business Broker. There is no one-size-fits-all approach when selling a business. Do not be impressed by the Business Broker who presents the highest listing value – you may only be setting yourself up for failure during the sale process. Determining the right selling price takes a lot of research and time. Setting the right price will have a big determination on the sale. I personally send the details of my “Brokers Opinion of Value,” to my clients. As a Business Broker, we must keep the seller’s expectation in check. If a Business Broker values a business at 1 million, but the seller wants 3 million, that is going to be a problem. This is a common issue Business Brokers encounter.
About Jeff Jump
Broker of Record
Jump International Business Brokers
Jeff Jump is the managing Business Broker of Jump International Business Brokers. Jeff previously owned and operated two printing companies for over 15 years. Jeff has a Florida Real Estate Brokers License and is a Certified Business Intermediary® with the International Business Brokers Association®. He is also a member of the Business Brokers of Florida® Association.
Web: www.jumpinternationalbusinessbrokers.com
Email: jeff@jumpinternationalbusinessbrokers.com
Toll Free: 1-800-314-1365
What Makes a Business “Sellable”?
I have been asked a thousand times what makes a good listing? My answer is simple – I want a business with potential to grow, that has three years of rising sales and profits, has perfect financial records and a highly motivated seller. If you can’t find one of them, you might take some listings that don’t quite check all the boxes.
It might be easier to list the things that can make a business not sellable. We have all run into these conditions – sloppy financials, lack of customer diversity, too much family working in the business. The list is long. At the top of the list are seller motivation and seller expectations. Many of the problems can be overcome if the seller is truly motivated and his or her expectations are realistic.
So many people will only sell one business in their life. Because of our association with real estate, many view selling a business like selling a house. It is not. While we share the same license, we are not real estate agents. We are business intermediaries. Our roles are different.
It is the role of the intermediary to set expectations. You are in charge of that! In my experience, expectations must be set before taking the listing. I recently closed a transaction that I worked on for three and a half years. The sellers would not budge on their price (50% above my initial valuation). Under no circumstances would they hold a seller note. They had to have a buyer with direct industry experience. They also had no financials when I met them 3.5 years ago. I was able to keep the listing and achieve success because the seller’s expectations were set. I told them at the beginning this would not be quick. I educated them about the valuation and what was driving that number. I connected them with an accountant and told them to keep running the business. If you continue to grow the business, it will eventually be worth your asking price. They did and it worked.
Usually, the biggest expectation we deal with is price. If my valuation says $500k and the seller wants $1.5 mil, the meeting is over – call me if you need my help. I think it would be unethical – as a professional – to take a listing far above my valuation. By taking that listing you are telling the seller it is possible. That feels like misleading to me.
You can make your listings more sellable. Set reasonable expectations at the beginning. Dig in deep and find the issues that could be a deal stopper. Be prepared to explain the issues and propose solutions. Stay in close contact with your sellers. Update financials monthly. They need to show growth even if it is modest. The trend (direction) is critical.
Your knowledge and training brings a lot of value to the transaction. They can’t do this without us.
Happy selling.
About John W. Hoyt Jr.
Owner
Goldcrest Commercial
Goldcrest Commercial is owned and managed by John Hoyt, Licensed Real Estate Broker. John was first licensed in California in 1975 and obtained a Florida license in 1987. In 1995 John acquired AAA Business Brokers and merged with Goldcrest in 2001. In prior careers John was a Commercial Division Manager for a large national real estate firm overseeing the activities of 10 or more commercial and business brokers. While working as a lender John originated and closed over 500 loans – many to small business owners.
Since joining the industry John has served on State and local Boards of Directors for both Florida Business Brokers Association (FBBA) and Business Brokers of Florida (BBF). He has been recognized as a million dollar plus producer multiple times since 1996 and was recognized as Top Producer Statewide in 2006. John has owned and operated businesses in both the manufacturing and service industries.
To Co-Broke or Not to Co-Broke, Which Will It Be?
Suppose it were possible to simplify what we do as business intermediaries. In that case, we would be best described as trusted advisors or confidential facilitators between the buyers and sellers of a business deal. One of our many objectives is to help business owners sell their businesses for the best possible price while ensuring buyers get a good deal. In some cases, however, a single intermediary may find it challenging to provide their clients with the best possible service. This is where co-brokering comes in.
I understand that co-brokering is not a popular idea for many intermediaries throughout the world. However, for the Business Brokers of Florida® (BBF) is not only a governing rule of our association; it is a proven fact that co-brokering completes more deals for buyers and sellers. Additionally, this is confirmed in the numbers where almost thirty percent of the deals completed in the BBF in 2022 were co-brokered between our members.
For the unknowing public, co-brokering is a process where two or more intermediaries work together to facilitate the sale of a business. The benefits of co-brokering are numerous, and they can help both intermediaries and their principals. One of the main benefits of co-brokering is that it allows intermediaries to pool their resources and knowledge to provide better service to their buyers or sellers. For example, if one broker has more experience in a particular industry, they can share their expertise with their co-broker, allowing them to provide better advice to their principals.
Another benefit of co-brokering is that it will allow intermediaries to reach a wider audience. However, this mindset could be overlooked by an intermediary who is more concerned about splitting the deal. By working with another intermediary, they can tap into a larger network of contacts and potentially reach more potential buyers. This could be particularly useful for an intermediary who may not have a strong presence in a particular geographic area or industry. This is also an added benefit when an intermediary doesn’t have a specific type of business for a buyer in their inventory, allowing options of co-brokering other firms listings.
Co-brokering can also help intermediaries manage their workload. As many of us have experienced, selling a business can be time-consuming, and it can be challenging for a single intermediary to manage all aspects of the transaction. By working with another intermediary, they can share the workload, allowing each intermediary to focus on their strengths and provide better service to their buyers and sellers.
Additionally, co-brokering can help brokers mitigate risk. Selling a business involves a significant amount of money and many legal and financial factors that are to be considered. By working with another broker, brokers can ensure that they follow all necessary procedures and that their principals and the firms, are protected throughout the process.
Co-brokering can help brokers build stronger relationships with buyers and sellers. By working with another intermediary to sell their business, buyers and sellers may feel they are getting more attention and support. It can help build trust between the principals and intermediaries, leading to future business opportunities.
In conclusion, co-brokering can be a highly beneficial arrangement for business intermediaries. It allows them to pool their resources and knowledge, reach a wider audience, manage their workload, mitigate risk, and build stronger buyer/seller relationships. By working together, intermediaries can provide better service, ensuring buyers and sellers get the best possible deal.
To all my fellow business intermediaries out there, do you co-broke? If not, why?
Joe Shemansky CBI, M&AMI, CM&AP
Chairman
Business Brokers of Florida