Determining Owner Commitment to Selling a Business
As an owner, deciding to sell your business can be a difficult and time-consuming experience, and one that requires proper planning and awareness of marketability. When evaluating a potential business for purchase, it is important to understand the owner’s commitment to the sale. Many owners have prepared from the early stages of the life of the business and have developed a detailed exit plan by the time they are ready to retire. In other cases, the owners may find themselves selling before they are entirely prepared, either because of burnout or divorce for example.
According to the International Business Brokers Association (IBBA) when it comes to the buying or selling of a business, 49% of the transactions did not make it to closing in Q1/2018. When evaluating the owner’s commitment and potential to close it often comes down to the owner’s motivation to sell as well as the amount of planning the owner has put into developing a successful exit strategy. Determining an owner’s motivation to sell is an important step in the initial due diligence process as it will sometimes shed some light on the likelihood that the deal will go through.
Below are common reasons owners decide to sell a business:
Retirement: The International Business Brokers Association (IBBA) lists retirement as the number one reason business owners decide to sell their business for listings in the <$500K-$5Mil range. Adding to this already common reason, there is a major uptick in the amount of small businesses being put on the market with the massive influx of baby boomer business owners reaching retirement age. According to the California Association of Business Brokers, retiring Boomer business owners will sell or donate $10 trillion worth of assets over the next (more…)
Read MoreIs Earnest Money required when selling a business?
Is earnest money or a breakup fee required when selling or buying a small business? The answer to this question may surprise you depending on who you are. If you talk to a business seller or a business buyer, they may answer you the same, however as you dig in a little more into their answer you will see a glaring difference in the answer. A business seller will have a very different perspective from the business buyer.
Sometimes these terms are used interchangeably; however, there is actually a significant difference between an earnest money deposit and a breakup fee, and a good understanding of both and why they are used will help answer the question posed in the title of this article.
First, let us define these terms.
Earnest Money
Is a deposit made to a seller showing the buyer’s good faith in a transaction. Earnest money is typically held jointly by the seller and buyer in a trust or escrow account, and has its origins in the real estate world. An earnest money deposit shows the seller that a buyer is serious about purchasing the business. When the transaction is finalized, the funds are put toward the buyer’s down payment. If the deal falls through, the buyer may not be able to reclaim the deposit. Typically, if the seller terminates the deal, the earnest money will be returned to the buyer. When the buyer is responsible for retracting the offer, the seller will usually be awarded the money.* (more…)
Read MoreCan Baby Boomers Reduce Financial Risk by Selling their Small Business?
Imagine your financial advisor telling you to invest 80% of your net worth into one stock. This may sound crazy, but small business owners are doing this every day.
It is well known that investment diversification is one of the more important ways to reduce financial risk to an investment portfolio. According to Investopedia, “diversification is a technique that reduces risk by allocating investments among various financial instruments, industries and other categories”.
For better or worse, the majority of net worth of a successful small business owner is most likely held within their own company.
According to the FPA/CNBC Business Owner Succession Planning Survey released earlier this year, an estimated 10 million small-business owners plan to sell their businesses over the next ten years. Most of these business owners are baby boomers. According to the study almost 80% of small business owners are relying on the proceeds for retirement. The scary fact is that the average small business owner is anticipating between 60% to 100% of their retirement needs will come from the sale of their small business.
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Read MoreWhen is the Right Time to Sell My Business?
A key question many business owners struggle with is…when is the right time to sell my business for its maximum value? This is often a very personal decision with several aspects to consider. There are 5 key questions to ask yourself.
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Is my business growing, remaining flat or declining?
For business with sales and profitability that are growing at rates of 10% or greater, they provide an outstanding opportunity to capture a premium. The business trends over the last 3 to 5 years is a key factor prospective buyers look for and greatly influence what they are willing to pay. Businesses which have remained relatively flat do not necessarily generate the same level of interest as high growth businesses. However, they are generally good businesses for a buyer to consider if they provide market potential and represent an opportunity for a new buyer who is willing to explore new avenues to grow the business. Businesses which are trending down are often passed on by most buyers due to the risks involved unless the problems are easily identified and the path for turning things around is clear. If this is the case, you should either spend the time and energy to get things back on track or be prepared to accept less for your business.
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Am I still motivated to operate my business?
I have represented many business owners who own a strong business and have developed a reliable business model, but lack the energy or motivation to continue to operate at maximum (more…)
Read MoreSell Your Business In The Shortest Time, For The Most Money…
Do you want to sell your business in the shortest time, for the most money? Here are some things to consider:
Proper Preparation is Key
In a normal market with the right preparation, it takes on average 6 to 8 months to sell a business. If the work isn’t done ahead of time the business may never sell. To sell your business in the shortest time, for the most money:
It is important to have a clean set of financial statements, preferably 3 years of comparative numbers. A prospective buyer is going to rely on this information when he makes his offer, so the numbers must be verifiable. Nothing kills a deal faster than information presented that cannot be substantiated. Ask your advisor or trusted business friend to role play with you to (more…)
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