Seller FAQ's
[Sellers] [Sellers Tutorial] [Seller FAQ's]
Why use a business broker/intermediary?
What can business brokers/intermediary’s do?
How is confidentiality maintained during the process?
Should I have a Valuation done on my business?
What information is necessary to value a business?
How is the sale of the business structured (price, terms,conditions)?
How long does it take to sell my business?
What can I do to prepare my business for sale?
How is my business marketed for sale?
What happens when there is a buyer for my business?
Why is seller financing so important to the sale of my business?
If I want to sell my business in 2-3 years, what should I be doing now?
Why use a business broker/intermediary? top of page
When selling a business, a seller cannot afford to make a mistake as it may have a financial impact on the sale of the company. The sale of a company is typically a once in a lifetime activity for a business owner and mistake in presentation or negotiations can be costly.
Working with a qualified professional intermediary will enable you to avoid making the inevitable and costly mistakes in the process of selling your company which is your most important and valuable asset.
What can business brokers/intermediary’s do? top of page
Business brokers/intermediary’s are the professionals who will facilitate the successful sale of your business. We can help you decide how to price your business and how to structure the sale so it makes sense for everyone. We can find the right buyer for your business, work with you and the buyer in negotiating, and assist every step of the way until the transaction is successfully closed. A business broker can’t sell a business that is not priced and structured properly.
How is confidentiality maintained during the process? top of page
It is imperative to maintain confidentiality throughout the sale process and to take measures that will guard against competitors, employees, vendors and customers learning of an impending sale. These measures include a Confidentiality and Non-Disclosure Agreements, thorough buyer identification and qualification procedures, marketing documents which are non-descript, and other steps. The use of a business broker/ intermediary greatly enhances the probability of maintaining confidentiality throughout the process by providing a communication layer outside of the company and managing buyer access to information. Information will be given as necessary and do not need to be shared with potential buyers until well into the process.
Should I have a Valuation done on my business? top of page
Yes. Determining the value of your business is an important first step. Utilizing Carrara and it’s third party certified business appraiser is necessary for banks and SBA financing to qualify or pre-qualify for business loans. This is also necessary in determining the price, terms, and conditions for selling the business.
An alternative for smaller businesses (less than $500,000 in value), Carrara can do a market price/ comparables survey. Our firm has access to comparative data of businesses listed for sale in a wide range of industries. We can provide you with a price range based on current market conditions and rules of thumb after we analyzed and recast your financial statements. This is not a substitute for a 3rd party valuation especially if bank financing will be required
What information is necessary to value a business? top of page
There are a number of items that are necessary such as: 3 years of financial statements and tax returns, list of assets, market value of these assets, overview of the business, and many other items.
Carrara will sit down with you to obtain all the necessary information and interview you about your business. Also, we will “recast” your Company’s financial statements and earnings so that true economic value of your business can be determined. Proper interpretation and presentation of financial information is a crucial step in the selling process. Financial statements are typically prepared for tax purposes, not for business sale purposes, and do not accurately reflect the true profitability of a business. One must be able to “read between the lines” of the financial statements and tax returns to present the total discretionary pre-tax income that would be available to an acquirer. Failure to properly present a true cash flow potential can significantly reduce the price that a qualified buyer may offer for your Company.
How is the sale of the business structured (price, terms, conditions)? top of page
After a valuation is performed, Carrara will research the market and present a recommendation on the structure of the sale based on the valuation and market conditions. The structure will include the following: price, down payment requirements, amount of seller financing terms and conditions, assets or liabilities included in the sale, assets or liabilities excluded from the sale, seller training, etc.
How long does it take to sell my business? top of page
It generally takes, on average, between 5 to 12 months to sell most businesses from the time all the information is provided. A variety of factors, including: market conditions; desired transaction structure; availability of financing; sales trends; competing opportunities; price and terms; business size and cooperation of professionals are a few items that influence how long it takes to sell a business.
What can I do to prepare my business for sale? top of page
You may want Carrara to perform some services to prepare your business for sale to make it more attractive to the potential buyer. Furthermore, keep all your financial information current and keep the business humming. Make sure the attorney you select is familiar with the business closing process and the various business laws. Time is of the essence in any business sale transaction. The failure to close on schedule permits the buyer to reconsider or make changes in the original proposal.
How is my business marketed for sale? top of page
To optimize the sale process, it is critical to create a professional presentation of the business. Carrara prepares a comprehensive, objective and articulate prospectus of the Company that positions the business in the best (and most accurate) light. The presentation of a business is from both an operational and financial perspective.
The operational perspective focuses on: minimizing risk factors and growth potential.
Risk factors are defined as anything that may cause doubt as to the predictability of future earnings under new ownership. Minimizing risk factors that could negatively affect the Company (and it value) is key to increasing a buyer’s comfort level with the future earning power and viability of the business.
We will present the growth opportunities that are well defined and attainable. A buyer will often pay at or above the high-end of the valuation range when these opportunities are presented professionally.
Although a business appraiser looks at a company’s track record or past performance to determine a value, the price a Buyer is will to pay will be influenced by the sustainable “future cash flow potential” due to a stable base of business and the significant growth opportunities. Carrara will use its marketing tools and presentation skills to maximize the perceived value of the business to the prospective Buyer.
Carrara then markets the business for sell through numerous channels such as: internet listing boards, direct marketing to targeted buyers, accounting firm network, internal buyer database, and other methods.
What happens when there is a buyer for my business? top of page
When a buyer is sufficiently interested in your business, he or she will, submit an offer in writing. This offer or proposal may have one or more contingencies. Usually, they concern a detailed review of your financial records and may also include a review of your lease arrangements, franchise agreement (if there is one), or other pertinent details of the business. You may accept the terms of the offer or you may make a counter-proposal. You should understand, however, that if you do not accept the buyer's proposal, the buyer can withdraw it at any time. 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 seriously consider. You should review the offer with your attorney. When you and the buyer are in agreement, both of you should work to satisfy and remove the contingencies in the offer. The buyer may, at this point, bring in outside advisors to help them review the information. When all 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.
Why is seller financing so important to the sale of my business?
top of page
Surveys have shown that a seller, who asks for all cash, receives on average only 70 percent of their asking price, while sellers who accept terms receive on average 86 percent of their asking price. That's a difference of 16 percent! With reasonable terms, the chances of selling increase dramatically and the time period from listing to sale greatly decreases. Most sellers are unaware of how much interest they can receive by financing the sale of their business. In some cases it can greatly increase the amount received. Also, it tells the buyer that the seller has enough confidence that the business can, pay for itself.
If I want to sell my business in 2-3 years, what should I be doing now? top of page
Hire Carrara to provide consulting services. We offer a wide range of services to prepare a business for sale, whether it be immediately or in 2-3 years.
If the valuation comes out lower than your expectation, we can work with you to improve your profitability, improve cash flow, and reduce any risk factors that the business may have. It may be as simple as a tune-up or an overhaul of the current marketing program. Whatever the case, the emphasis will be to improve the value of the business and position the business for sale in 2-3 years.
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