When it comes time to selling a business in California, research shows that many owners have a limited understanding of the process and often make fundamental mistakes that seriously undermine the final sale price.
As a result, many businesses change hands every month in a way that is planned and orderly, but the owners miss their opportunity to maximize value.
Others are sold in a less rigorous do-it-yourself fashion that often leads to poor results that are compounded by frustrating delays and ongoing uncertainty.
Opinion of Value
Experience has shown that there is a large percentage of business owners who do not know what their business is worth or how to go about establishing its true value.
Some owners have a figure in mind of what their business is worth, but this number is often overinflated because of their emotional attachment. Others undervalue their business because they do not know the various valuation methodologies and which one is most appropriate for their specific business.
There are several established methods of determining the value of your business. In most cases, Keystone Business Advisors uses a combination of these methods to determine the most probable selling price. Most of the approaches we use are market-based, employing comparable sales data for similar businesses. Not only can we provide our opinion of what your business may sell for, but we can show you facts and figures revealing exactly how we got there.
Confidential Information Memorandum
A professionally prepared information memorandum is a strong marketing tool to communicate and promote your business to prospective buyers. The Confidential Information Memorandum (CIM) is a comprehensive document prepared by Keystone Business Advisors which discusses the value drivers of your business.
The CIM is crafted to provide buyers with a comprehensive overview of your business, including its history, products and services, customers, marketing, operations, management, key employees, financial summary and analysis, growth projections, SWOT analysis, and investment highlights, to name a few.
The methodology and thoroughness our M&A advisors take in preparing this key document provides us with a competitive advantage. We have one opportunity to make a positive first impression of your business, and this document is it. The CIM will vary in length between 20 and 60 pages. Most importantly, the document enables interested buyers to move forward at a much quicker pace, and far less time and effort is required from the seller.
Customized Marketing Program
The Keystone Business Advisors Marketing Program is designed to reach the maximum number of potential buyers without comprising your identity. After preparing the Confidential Information Memorandum, we identify and compile a list of target buyers we believe will be interested in and benefit from acquiring your business. We reach out directly to the owner or executive team to discretely pitch your business.
Identifying the motivations of different types of buyers is an important part of our proactive program. Generally, third party buyers fall into one of three categories:
- Financial buyers: These individuals are looking for a company they intend to run as owner operator.
- Strategic buyers: Strategic buyers are companies in your industry or a similar industry looking to expand via acquisition. Strategic buyers often realize cost savings (consolidating operations into one location, eliminating headcount) or increased revenue (selling their products to your existing customers or vice versa). We aggressively target strategic buyers because synergies often create increased value for the buyer. This advantage can translate into an increased selling price.
- Private investors, family funds, and private equity groups: Private equity is composed of funds and investors that directly invest in private companies. This category comes into play when there is a source of investment capital from high net worth individuals and institutions for the purpose of investing and acquiring equity ownership in companies.
Keystone Business Advisors utilizes its own database consisting of thousands of buyers categorized by their requested industry and business size. Over 30% of businesses sold by Keystone Business Advisors are those with which we already have established a relationship.
Keystone Business Advisors is active in various regional and national industry associations, which enables us to increase the exposure you will receive when you sell a business in Los Angeles or its surrounding counties.
Until the buyer has been identified and properly screened, Keystone Business Advisors maintains a strict confidentiality policy. This policy is in place to assess their financial and operational capabilities and help to identify that their intentions are genuine. The initial screening process is designed to confirm that the buyer is not only in a position to complete the purchase but is also motivated to do so.
Once we have assessed that a prospective buyer fits the necessary criteria, interested parties must execute a confidentiality agreement and buyer profile. We then provide the buyer with the Confidential Information Memorandum and follow up with a call or meeting to provide an overview of the business and answer any initial high-level questions the buyer may have.
After a buyer has reviewed the Confidential Information Memorandum and expressed interest in pursuing the next step, Keystone Business Advisors will coordinate an introductory meeting between buyer and seller. Depending on the results of the meeting, a buyer may have additional questions and will usually require further information and documents.
Selected information is supplied, ensuring that any sensitive material is withheld until an offer has been made and progressed under the terms of the due diligence. Securing a buyer’s trust and confidence is critical to achieving a successful sale. Difficult questions will undoubtedly be asked, and you must be prepared with honest, plausible answers. We learn about the intricacies of your business in advance so that we can help you prepare how to overcome any potential objections.
Offer and Negotiations
Provided the buyer has been supplied with all the basic information they require and are interested in pursuing an acquisition of your business, Keystone Business Advisors will manage and negotiate the price and deal point terms on your behalf.
Our goal is to maximize the after-tax selling price and terms for your business. We have been successful in this regard by fully understanding what is important for both the buyer and seller. Through this means, we can structure a deal with a high probability of closing without the seller leaving money on the table.
For our smaller transactions, we will typically prepare the purchase agreement using standard purchase and sale forms provided by one of our associations. We recommend you share the agreements with your tax and legal advisors as recommended with any legal contract.
For our larger transactions, a buyer will prefer to present an Indication of Interest (IOI) or Letter of Intent (LOI) to negotiate price and key deal terms with commitments to enter into a Purchase Agreement later, depending on the outcome of due diligence.
Keystone Business Advisors plays an essential role in negotiating the sale on your behalf when you sell your business in Los Angeles. We prefer a collaborative approach where we can work directly with your legal, tax, and financial planning advisors to help ensure that your risk is minimized and the amount you walk away with after paying tax is maximized. Our expertise at negotiation means that we can often recommend win-win solutions that help keep the deal moving forward and increase the chances for a successful closing.
The Letter of Intent or Purchase Agreement will include a due diligence clause, giving the buyer a specified period of time to investigate and confirm that the information supplied is accurate.
Many business owners assume that the deal is done once the parties have entered into contract. In reality, the most common reason why a transaction does not go through is a result of a seller not being properly prepared for due diligence. We utilize a secure online data room to facilitate an efficient and secure exchange of information.
The two most common deal killers are time and surprises. We carefully prepare our clients in advance for what to expect when you sell your business in Los Angeles. Keystone Business Advisors works diligently to ensure that there are no surprises that are not discussed prior to a buyer making an offer. When it comes to completing a transaction with the same price and terms that were negotiated upfront, taking these steps is tremendously beneficial.
Time & Responsibility Schedule
As you can imagine, there are a tremendous number of tasks that both a buyer and seller must complete in order to facilitate a smooth transition and minimize disruption after the closing.
Keystone Business Advisors utilizes a Time & Responsibility schedule to manage all the tasks that the buyer, seller, M&A advisor, escrow, and other key advisors are required to do to keep the process moving forward on time and in an orderly manner. We have found this adds tremendous value for our clients in terms of efficiency, improved communication, and maintaining the target timeframe.
Bulk Sale escrow
In certain states, such as California, clients who are looking to sell a business in Los Angeles are encouraged to adhere to the local bulk sales laws by working with an escrow company that specializes in bulk sale transfers for companies with less than $10 million in gross sales. This helps ensure that the business is being delivered free and clear from all liens and that the transaction remains in compliance with all local and federal government entities.
Escrow will also create the final bill of sale and draft the promissory note and security agreement if seller financing is involved. The escrow process typically takes four weeks and can either be accomplished after or parallel with the due diligence process.
Closing and Transfer
Once all conditions in the purchase agreement and escrow instructions have been satisfied, the sale of your business will be declared unconditional.
Keystone Business Advisors will work to finalize the details required for the closing to take place on a specified date. We also assist in a transition plan with the objective of minimizing disruption and uncertainty for the employees and customers of the business.
After closing, the seller will train the buyer for an agreed period of time to facilitate a smooth transition. Your Keystone M&A advisors can provide you with a list of things that typically need to be done pre- and post-closing to help ensure a smooth transition when you sell a Los Angeles business.