Our duty as Brokers is to showcase our business listings with as much detail and accuracy as possible so as to wow the Buyer. One way to do that is through the preparation of a Confidential Business Review (CBR) or a Confidential Information Memorandum (CIM). These two terms are often intertwined and used in the same manner. The difference between these two documents is that the CIM is usually prepared by Investment Bankers and M&A Advisors for Mid-Market and Medium Size Business offerings. CBRs and CIMs reflect the heart and soul of the business. They are time consuming and can only be put together once all the relevant information on the particular business has been obtained by the broker, including research on the industry and the market where it operates.
Presenting the right CIM, CBR or Brochure for your listing
What’s the purpose of a Confidential Information Memorandum?
A Confidential Information Memorandum (CIM) is a professionally prepared lengthy summary of your business that is presented to prescreened buyers who are interested in purchasing your business. The CIM addresses the buyer’s questions quickly and efficiently, saving countless hours. It includes information regarding company history, products, services, licensing, and competition. It also includes a financial summary, information about operations, lease terms, the value of assets and inventory, an employee summary, and terms of the sale. The purpose of the CIM is to help the buyer decide if they would like to take the next steps and learn more about the business. The CIM will not address every question the buyer may have about the business. Rather, it allows the buyer to take the next steps in the transaction.
What is included in the CBR (20-40 pages)?
Here are the major topics typically covered:
- Disclosures
- Assets
- Competition
- Customers
- Deal structure and financing
- Facilities & Equipment
- Financials
- History
- Improvement potential
- Intellectual property
- Inventory
- Operations
- Pricing
- Product or service
- Staff
What’s included in a CIM (50-150 pages)?
In addition to the above, it may include these additional topics:
- Company Overview and History
- Competitor Overview
- Contracts
- Customer Overview
- Geographic Market Overview
- Growth Opportunities
- Industry Overview and Key Metrics
- Legal and Environmental Items
- Management Bios
- Marketing and Sales Team Overview
- Organizational Structure
- Product Information and Specifications
- Production or Service Processes
- Supplier Overview
- Technological Capabilities
As you may have noticed this is an extensive and comprehensive portrait of the business that requires accurate and detailed research and analysis of all information gathered from Seller and online. These documents answer most questions Buyers will have. They are one of the most important marketing tools we have to showcase our listings. But you don’t always need to have such an extensive portrayal of a business if it’s not that sophisticated. Smaller valued businesses can also be showcased using a Confidential Summary Booklet (5-10 pages) or a 2-3 page flyer/brochure. Regardless of what type of Memorandum or Flyer you decide to use, make sure it’s colorful, insightful, with graphs, tables and valuable content, in other words “eye candy”. Sometimes less is more in order to trigger the Buyer’s interest and curiosity. Therefore, make it a habit to impress both Buyers and Sellers with your professionalism, expertise, value and effort you place in the marketing of your listings. CIMs can cost anywhere from $500 to $2500 to have it done professionally, if you do not possess the skill.
If you’d like to see samples of CIMS or CBRs feel free to email me at mhabib@theroyalcrowngroup.com so I can share some of them with you.
Mark Habib
The Royal Crown Group
The Overpricing Dilemma: The #1 Reason Why Businesses Fail to Sell and Why Buyers Shun Them.
The BBF has given sellers and their brokers an amazing marketplace to sell businesses. It has proved to be quite efficient in its ability to find the right buyer to buy businesses that enter the marketplace. And in today’s seller-favored landscape of business transactions, if a business is not selling, we can only deduce that it is overpriced. This issue is obvious, and the statistics show clearly that these businesses most likely will not sell. In this article, we will delve into some key reasons as to why overpriced businesses struggle to sell.
Educated Buyers: Modern consumers are more informed than ever before, thanks to the wealth of information available at their fingertips. Buyers conduct thorough research, understanding market trends, financial standings, and comparable sales. An overpriced business stands out like a sore thumb to educated buyers who can quickly identify discrepancies between the asking price and the actual value. Informed buyers are less likely to “make an offer,” leading to a prolonged listing period or, in some cases, no sale at all.
Comparative Shopping on the Internet: The internet has revolutionized the way people shop, and this holds true for business acquisitions as well. Potential buyers can effortlessly compare prices, features, and the overall value of businesses in the same industry or niche. A business that is perceived as overpriced online will struggle to attract serious inquiries, as buyers can easily find alternatives with better value propositions. The transparency provided by the internet has made it imperative for sellers to understand the marketplace and price accordingly.
Aversion to Negotiation: Negotiating the sale of a business can be a delicate dance, and some buyers are averse to the process altogether. When a business is overpriced, negotiations become more challenging, and potential buyers may be discouraged from engaging in the conversation. Buyers prefer transparent and fair pricing. Therefore, an overpriced business may create an atmosphere of distrust, hindering the negotiation process and causing the process to never even start. This may also be a generational trend worth consideration.
Fear of Offending Sellers: Buyers often tread carefully during the negotiation process, fearing that expressing concerns about the pricing may offend the sellers. This reluctance to discuss perceived overpricing can lead to a breakdown in communication and a failure to reach a mutually agreeable deal. Sellers who are open to constructive feedback and are willing to adjust their pricing strategy are more likely to engage in successful negotiations and ultimately close the deal.
Perception of Unreasonableness: The perception of a seller as being unreasonable or even delusional can stem from an overpriced listing. If a business is priced significantly higher than its market value, potential buyers may view the seller as unrealistic or out of touch with market realities. This perception can drive away serious buyers who are looking for fair and justifiable pricing. It may also call into question the seller’s representations of other items in the opportunity such as earnings claims.
Drop in Sales: The Evidence is Clear: Statistics indicate a clear correlation between overpricing and a failure to sell. When a business is priced more than 15% above its market value, the chances of a successful sale decrease significantly. This underscores the importance of accurately valuing a business, pricing it appropriately to attract potential buyers and facilitating a successful transaction process.
In conclusion, the primary reason businesses fail to sell is that they are overpriced. Educated buyers, the power of the internet, aversion to negotiation, fear of offending sellers, and the perception of unreasonableness are all factors that contribute to this dilemma. Again, buyers will not “just make an offer.” Brokers must help their sellers carefully consider market dynamics, give them professional advice, so they adopt a realistic pricing strategy in order to maximize their chances of a successful business sale in today’s marketplace. Simply stated, if you are trying to sell a business, and have yet to, your business is most likely overpriced.
Andy Cagnetta
M&AMI,CBI,CM&AP, BBF Board Member
CEO of Transworld Business Advisors
7 Important Questions to Ask Yourself When Selling a Business
There is no denying the fact that for most people, the decision to buy or sell a business is one of the most important professional and financial decisions that they will ever make. Let’s turn our attention to some of the key questions you’ll need to ask.
1. What is really for sale?
You’ll need to determine what is, and is not, for sale. If you own machinery or real estate associated with the business, are those items to be included in the sale?
2. What assets bring in revenue?
One important factor to consider when preparing a business to be sold is what assets are earning money. If you have assets that are not earning money, then it may or may not be prudent to sell those assets.
3. What is proprietary?
Buyers and sellers alike will want to consider what is proprietary. Anything from software and patents to formulations can be extremely valuable. Sellers will want to give substantial thought to how to best frame any proprietary property that they have in the best light. Buyers will want to carefully evaluate proprietary property to try to ascertain an accurate value. Outside experts may be needed to make an accurate assessment.
4. What’s your competitive advantage?
A business’s competitive advantage should be of importance to buyers and sellers. A seller should focus on understanding their competitive advantage, whether it is a certain niche, a superior manufacturing process or product, better marketing or a range of other factors. Properly framing your competitive advantage can help buyers see the full, and even untapped, value of your business.
5. What is your growth potential?
Buyers will want to consider factors such as whether or not the business has the potential to grow. If the business can’t be grown, then buyers should include this fact in their final decision and/or offer.
6. What agreements do you have in place?
Other factors such as employee agreements, non-competes, and the depth of management are all areas of concern for a prospective buyer. Buyers will want to consider if the seller has secured agreements from key employees and how dependent the business is on an owner/manager.
7. What relevant financial information will a buyer want to know?
Understanding how much working capital is needed to run the business and how financial reporting is undertaken are other factors that should not be glossed over.
If you are preparing to sell your business it is worth the time to pause and think about what your business might look like to a buyer. In short, what would you think of your business if you were the buyer and what questions would you ask?
Buying or selling a business is complex. Every single business is different and that means there is no 100% standardized approach and route towards success. A seasoned, experienced and professional business broker or M&A advisor can help guide buyers and sellers alike towards optimal outcomes.
Copyright: Business Brokerage Press, Inc.
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Steps for a Successful Closing
The closing is a pivotal moment in the history of a business as it marks the formal transfer of a business from one party to the next. Behind every successful closing is months of focus and hard work. Simply stated, a successful closing doesn’t just happen, but is instead the byproduct of extensive negotiations.
One key document to utilize in the closing process is the Purchase and Sales Agreement. There are four key aspects to this document.
- First are the terms of the agreement, which typically cover the price as well as detailed terms on how the business is to be paid. In the Purchase and Sales Agreement, you will find the status of any management that will be staying with the business.
- This document also should contain conditions and covenants which include non-competes as well as agreements on what to do and what not to do moving forward.
- Any good Purchase and Sales Agreement will, of course, include a description of the transaction. In other words, is the transaction a stock or asset sale?
- Finally, the agreement will cover representations and warranties. This is typically negotiated after the Letter of Intent is agreed upon. In short, the warranties will provide that everything is as it has been represented.
Now, let’s look at the four key steps that are a must before the sale of a business can close.
- Topping the list, is that the seller must provide satisfactory evidence that they have the full legal right to act on the behalf of the selling company. Additionally, the seller must show evidence that they have full legal authority to sell the business.
- Secondly, all representations and warranties must be in place. Importantly, this will also include clearly stated remedies that are available to the buyer in the case of a seller’s breach.
- Third, the buyer’s representative should have completed the due diligence process. A key part of the due diligence process is that any claims and representations made by the seller have been clearly substantiated and addressed.
- Last, but certainly not least, necessary financing should have been secured. A critical part of the process is that all of the proper paperwork, as well as the appropriate liens, should be in place, as no funds can be released until these conditions have been met.
It is also important to note that there are two significant elements of closing that will take place simultaneously.
- The first is the corporate closing which is the actual transfer of the corporate stock or assets. This step is based on the provisions set forth in the Purchase and Sales Agreement. All the paperwork that was carefully laid out in the Purchase and Sales Agreement has been completed.
- The second major element is the financial closing. In the financial closing all the paperwork, as well as the legal documents needed to provide funding have successfully been executed.
While there is no doubt that closing is a joyous time, it is also vital to remember that the period leading up to closing is the time to have a laser-like focus. This is the most important time to avoid mistakes. Working with a business broker or M&A advisor can dramatically reduce your chances of experiencing mistakes during the all-important closing process.
Copyright: Business Brokerage Press, Inc.
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Lack of Experience Can Be a True Deal Killer
Most business owners are experts at running their specific businesses. They are not necessarily experts at selling businesses. This is where working with a seasoned brokerage professional can prove to be invaluable.
As it turns out, there are endless examples of people trying to save money by simply finding an MBA to handle the sale of their business. Owners often will trust this person despite whether or not they have direct experience selling businesses. Sadly, the results from this decision can be very poor.
Let’s take the example of a business owner who opted to let his nephew with a freshly minted MBA oversee the sale of his multi-location retail operation. The idea was that his nephew would help him save a great deal of money. Unfortunately, this idea simply didn’t work. His well-intended nephew’s inexperience proved to be a liability.
Let’s take a look at some of the main problems that this business owner and his nephew faced:
Missing Legal Arrangements
One of the first problems is that neither the business owner nor the nephew realized how important confidentiality agreements were to the process of selling a business. This led to competitors learning that the business was for sale. Likewise, the lack of confidentiality agreements meant that everyone from key employees to clients, customers and suppliers could learn that the business was for sale.
Further, the nephew opted to use the company’s attorney instead of finding an attorney with experience in business transactions. The company attorney had never handled the sale of a large business before.
Incomplete Documentation
Another problem was that the nephew prepared what was supposed to be a Confidential Business Review/Confidential Information Summary – CBR/CIM. The review/summary prepared by the nephew failed to include proper financials, including a large sum taken by the owner. Importantly, there were no projections, ratios and other important information. This lack of information could easily lower the bids or simply cause prospective buyers to lose interest.
The way that the business owner and nephew handled the CFO was also an issue. They failed to bring in the CFO and did not execute a “stay” agreement. The nephew was confident that he could handle the financial details on his own. However, neither the owner nor the nephew realized that prospective buyers expected to meet the CFO as part of the due diligence process.
Failure to Properly Screen Candidates
Finally, not only did the nephew not understand the importance of confidentiality agreements or the due diligence process, but he also failed to understand the importance of the screening process. The nephew failed to interview prospective buyers to discover whether or not they were serious and had the resources to buy the business. The failure to have a proper screening process served to both waste valuable time and spread the word that the business was for sale.
For most people, selling a business is the single most important financial decision of their lives. For this reason, it is critical to find experienced and competent assistance for the process. An experienced business broker or M&A advisor understands what is involved in selling a business. In other words, your nephew may be a great guy and he may want to help you, but without years of experience selling businesses, he simply isn’t the right person for the job.
Copyright: Business Brokerage Press, Inc.
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