Susan Kite, Vice President of SBA Lending for The Brand Bank moderated a panel of SBA lenders for the GABB April 25 meeting.
She offers these suggestions to business brokers on ways to get a deal closed faster.
Get Seller Information as quickly as possible after signing a listing agreement. That information should include:
- Last 3 years’ Federal tax returns (if sole proprietor, get Schedule C)
- YTD interim statement to include Balance Sheet & Income Statement
- Previous year’s interim statement of same period
- Aging of Accounts Receivable and of Accounts Payable
- Listing of all assets being sold – and their market value (with serial numbers for any asset valued at $5,000 or more)
- Letter of Intent or Purchase Agreement
Manage Seller expectations
- They will likely have to take a Seller Note of 10% to 15% of sales price
- They will need to update Interim Financials and Agings every 60 – 90 days
Get Buyer information as soon as possible
- Last 3 Years Federal Tax Returns – Personal and Affiliate
- Recent Personal Financial Statement – give them form 413
- Business Plan (good template is at sba.gov)
- Financial Projections (monthly for Year 1 / Annually for Years 1-2)
- Personal Information Form 1919
Manage Buyer expectations
- Buyers will have to put in cash equity of 10% to 25% of sales price
- They may have to pledge their home or other real estate
- They will need to assign to the lender life insurance
- A business acquisition loan process is not like buying a home – it may take longer than they expect.
- Use a GABB Affiliate lender that knows business acquisition SOP rules
- Get with a lender early and use them as a resource
- Realize that to lenders, EBITDA is more important than SDE
- All add-backs must be verified
- Have your Seller and/or Buyer prepared with an organized application package
- The process will be much faster when information is provided quickly when requested
For more information, contact Susan Kite, VP SBA Lending / The Brand Bank / email@example.com / 770-595-9734Read More
You may hear the word “goodwill” thrown around a lot, but what does it really mean? When it comes to selling a business, the term refers to all the effort that the seller put into a business over the year. Goodwill can be thought of as the difference between the various tangible assets that a business has and the overall purchase price.
The M&A Dictionary defines goodwill in the following way, “An intangible fixed asset that is carried as an asset on the balance sheet, such as a recognizable company or product name or strong reputation. When one company pays more than the net book value for another, the former is typically paying for goodwill. Goodwill is often viewed as an approximation of the value of a company’s brand names, reputation, or long-term relationships that cannot otherwise be represented financially.”
Goodwill vs. Going-Concern
Now, it is important not to confuse goodwill value with “going-concern value,” as the two are definitely not the same. Going-concern value is typically defined by experts, as the fact that the business will continue to operate in a manner that is consistent with its intended purpose as opposed to failing or being liquidated. For most business owners, goodwill is seen as good service, products and reputation, all of which, of course, matters greatly.
Below is a list of some of the items that can be listed under the term “goodwill.” As you will notice, the list is surprisingly diverse.
42 Examples of Goodwill Items
- Phantom Assets
- Local Economy
- Industry Ratios
- Custom-Built Factory
- Loyal Customer Base
- Supplier List
- Delivery Systems
- Experienced Design Staff
- Growing Industry
- Recession Resistant Industry
- Low Employee Turnover
- Skilled Employees
- Trade Secrets
- Mailing List
- Royalty Agreements
- Technologically Advanced Equipment
- Advertising Campaigns
- Advertising Materials
- Computer Databases
- Computer Designs
- Credit Files
- Engineering Drawings
- Favorable Financing
- Government Programs
- Training Procedures
- Proprietary Designs
- Systems and Procedures
- Employee Manual
- Name Recognition
As you can tell, goodwill, as it pertains to a business, is not an easily defined term. It is also very important to keep in mind that what goodwill is and how it is represented on a company’s financial statements are two different things.
Here is an example: a company sells for $2 million dollars but has only $1 million in tangible assets. The balance of $1 million dollars was considered goodwill and goodwill can be amortized by the acquirer over a 15-year period. All of this was especially impactful on public companies as an acquisition could negatively impact earnings which, in turn, negatively impacted stock price, so public companies were often reluctant to acquire firms in which goodwill was a large part of the purchase price. On the flip side of the coin, purchasers of non-public firms received a tax break due to amortization.
The Federal Accounting Standards Board (FASB) created new rules and standards pertaining to goodwill and those rules and standards were implemented on July 1, 2001. Upon the implementation of these rules and standards, goodwill may not have to be written off, unless the goodwill is carried at a value that is in excess of its real value. Now, the standards require companies to have intangible assets, which include goodwill, valued by an outside expert on an annual basis. These new rules work to define the difference between goodwill and other intangible assets as well as how they are to be treated in terms of accounting and tax reporting.
Before you buy a business or put a business up for sale, it is a good idea to talk to the professionals. The bottom line is that goodwill can still represent all the hard work a seller put into a business; however, that hard work must be accounted for differently than in years past and with more detail.Read More
Buying a business requires a good deal of capital or lender resources. The bottom line is that a large percentage of buyers don’t have the necessary capital or lender resources to pay cash and that is where seller financing comes into play. The fact is that seller financing is quite common. In this article, we will take a deeper look at some of the key points to remember.
Is Seller Financing a Good Idea?
Many buyers feel that a seller’s reluctance to provide seller financing is a “red flag.” The notion is that if a business is truly as good as the seller claims it to be, then providing financing shouldn’t be a “scary” proposition. The truth is that this notion does carry some weight in reality. The primary reason that many sellers are reluctant to provide seller financing is that they are concerned that the buyer will be unsuccessful. This, of course, means that if the buyer fails to make payments, that the seller could be forced to take the business back or even forfeit the balance of the note.
However, it is important for sellers to look at the facts. Sellers who sell for all cash receive approximately 70% of the asking price; however, sellers receive approximately 86% of the asking price when they offer terms!
Seller Financing has a Range of Benefits
Here are a few of the most important benefits associated with seller financing: the seller receives a considerably higher price, sellers can get a much higher interest rate from a buyer than they can receive from a financial institution, the interest on a seller-financed deal will add significantly to the actual selling price, there are tax benefits to seller financing versus an all-cash sale and, finally, financing the sale serves as a vote of confidence in the buyer.
Clearly there are no guarantees that the buyer will be successful in operating the business. Yet, it is key that sellers remember that in most situations the buyers are putting a large percentage of their personal wealth into the purchase of the business. In other words, in most situations, the buyer is heavily invested even if financing is involved.
Business brokers excel in helping buyers and sellers discover creative ways to finance the sale of a business. Your broker can recommend a range of payment options and plans that can, in the end, often make the difference between a successful sale and failure.Read More
You’ve either got a business to sell, or want to buy a business. So getting an SBA loan may be the key to closing the deal.
How do you make sure that the loan is approved, whether you’re the buyer or the seller?
On April 25, a panel of SBA lenders convened at the Georgia Association of Business Brokers meeting. Susan Kite, Vice President of Government Guaranteed Lending for the Brand Bank moderated the panel. Panelists included Claudia Wilson, Vice President at The Piedmont Bank; Ryan Stoll, SBA Business Development Officer with Wells Fargo SBA Lending; and Brian Harper, Senior Vice President of SBA Lending at Atlantic Capital Bank.
The meeting was held on Tuesday, April 25, at the Atlanta Realtors Center at 5784 Lake Forrest Dr. NW, Atlanta, GA 30328. The GABB’s business meeting begins at 10:30 a.m. is preceded by a 9:45 a.m. networking session with coffee and pastries. There is no charge to attend the GABB meetings; dress is business casual. Directions here or below.
Stuart Oberman of the Oberman Law Firm sponsored the meeting.
The GABB is the state’s only association of professionals who work to facilitate the purchase and sale of businesses and franchises. The group includes business brokers as well as lenders, attorneys, business appraisers, insurance agents, environmental specialists and other professionals. GABB’s member business brokers work with businesses of all sizes to help them through all steps of selling their company — valuation, marketing, financing, and closing. Aspiring business owners also work with business brokers to purchase existing businesses at a fair price.
Last May, a similar SBA panel discussed SBA lending. They recommended that aspiring borrowers get the information to lenders early, be honest up front about potential problems, and expect to pledge assets, including a home, to secure the loan. Read more advice from these GABB affiliate lenders.
Since its founding on July 30, 1953, the U.S. Small Business Administration has delivered millions of loans, loan guarantees, contracts, counseling sessions and other forms of assistance to small businesses. SBA provides an array of financing for small businesses from the smallest needs in microlending – to substantial debt and equity investment capital (venture capital). The SBA participates in a number of loan programs designed for business owners who may have trouble qualifying for a traditional bank loan. SBA loan applications are structured to meet SBA requirements, so that the loan is eligible for an SBA guarantee. This guarantee represents the portion of the loan that SBA will repay to the lender if you default on your loan payments.
Directions to the GABB meeting location at the Atlanta Realtors Center:
From the South: I-75 north to I-285 east or I-85 north to I-285 west. Exit at Roswell Road south and turn right onto Northwood Drive. Turn right onto Lake Forrest. The Atlanta REALTORS® Center on the left at the stop sign (intersecting Allen Road).
From the North: Take GA 400 south and change to I-285 west. Continue as above via Roswell Road.
From East or West: I-285 to Roswell Road. Continue as above.
There is no charge for parking.
For more information about the GABB, contact Diane Loupe at firstname.lastname@example.org or GABB President Mike Ramatowski at 770-634-0428.