Third in a series on Business Brokering
Buyer and seller strike a deal, but a thorough due diligence and either seal or sink that deal.
Georgia Association of Business Brokers Vice President Mike Ramatowski moderated a panel discussion at the July meeting on getting buyers and sellers through due diligence and to the closing table. Panelists were GABB Board Member Loren Marc Schmerler, CPC, APC, President and Founder of Bottom Line Management, Inc.; Kim Romaner, President of Transworld Business Advisors, who has 30 years of corporate and entrepreneurial experience in sales, marketing, operations and technology; and attorney Sarah Wheeler of Moore & Reese.
1. Find out if your clients REALLY want to buy or sell the business.
Have a heart-to-heart talk with your clients before putting the business up for sale, or making an offer on a business, to make sure the buyer and seller are really truly ready to do this. Cold feet will sink a deal, says Wheeler, who represents buyers, sellers or acts as a transactional attorney.
2. Make sure each side has realistic expectations.
Sellers must understand that they will be expected to sign a no-complete contract when they sell. Buyers must understand that if they need financing, they shouldn’t expect to get financing from seller with zero percent interest.
3. Clarify the terms of a Letter of Intent.
A letter of intent, a.k.a. LOI, is typically the beginning of the buying process and signifies a meeting of the mind. Both parties should understand whether the LOI is binding or not, how earnest money will be handled, etc.
4. Take the skeletons out of the closet.
If something is wrong with the business, if there is a liability, it’s a bad idea to hide that fact from a potential buyer. If it comes up in comes up in due diligence, Wheeler notes, the buyer will assume the seller was trying to hide it, and that makes it a lot harder to deal with. Schmerler said he had a sale imperiled because a prospective buyer discovered that a major client was going to discontinue business.
5. Use a GABB lender.GABB-affiliated lenders have experience with business sales, and understand the process. Other GABB affiliates are familiar with the ins and outs of deal making and will make the process smoother.
6. Get franchisors, landlords on board.
If you’re selling a business with a lease, don’t leave the landlord out of the process. Ditto with a franchisor if a franchise is involved. These and other interested parties can make or break a deal.
7. Complete the lender checklist. Lenders typically send out checklists of items they need before a sale can be completed. Sellers should read them and get that information together as soon as possible. Try to educate your client that the money drives the ship, and the closing will happen when the lender is satisfied.
8. Leave enough time for proper due diligence.
Due diligence takes time. Count on at least ten days for a main street transaction, Romaner said, longer for bigger deals.
9. Clarify expectations after the sale.
Sellers often agree to stay on during the transition, but Schmerler said usually the buyer doesn’t want the seller there after the second or third week. The buyer wants employees to view him or her as the new owner.
The July 28 panel was the third in a 3-part series of discussions designed to help GABB members improve their businesses. In May, social media expert David Camp discussed effective ways to use quality content and technology to prospect for new clients. Hear his comments on the GABB blog. The June panel featured three experienced brokers with differing approaches to working with buyers and sellers. Read about the panel and hear a recording at the GABB blog.
GABB meetings begin with guest and member introductions. After introductions, we have a presentation by either a panel or a speaker and then some time for questions. After the presentation we’ll have a few items of association business and then adjourn the meeting at around noon.
There is no cost to attend and there are two parking decks available with free parking adjacent to the facility. For more information about the GABB, contact GABB President Greg DeFoor at firstname.lastname@example.orgRead More
By Susan Kite, Vice President, Signature Bank of Georgia, and
Kim Eells, Vice President, The Brand Bank
I. “This deal costs too much; I can’t get it financed.”
- SBA 7a Loans are guaranteed by the US Government, giving banks a higher comfort level to make a loan they may have denied as a conventional loan. SBA loan terms can be up to 25 years with no balloon. This means that your buyer only pays closing costs once.
II. “SBA Loans have too much paperwork.”
- All commercial loans require both business and personal financial information. SBA loans do have a few additional forms, but most of these just require a signature – and your lender may even help your buyer fill them out!
III. “I don’t have collateral to offer the bank.”
- SBA only requires that all available collateral be taken. Experienced business acquisition lenders understand that these loans have a high amount of goodwill. They look to the SBA guaranty to help offset that risk. There also may be other factors that help offset the risk such as your buyer’s experience, personal liquidity, and strong business cash flow.
IV. “SBA Loans take too long.”
- It may seem to take forever, but most SBA loans only take 6 to 8 weeks from term sheet acceptance to closing. An experienced lender will help you move things along.
V. “I tried to get an SBA loan, but the bank I went to said no.”
- While this could signal the end of your deal – all banks have a slightly different appetite for different types of loans. Suggest that your buyer not stop there. In fact, GABB’s Business Acquisition Lenders have a network of contacts. We can usually find someone interested in doing your deal!
Call us if you need a knowledgeable and experienced SBA lender who will work hard to get your deal closed.
By Susan Kite, Vice President, Signature Bank of Georgia, Business Acquisition Loan Specialist, 770-595-9734
Kim Eells, Vice President, The Brand Bank, Business Acquisition Loan Specialist, 770-853-5625Read More
- Risk minimized. A reputable franchise is a proven business method. They’ve been through the ups and downs and know what works and what doesn’t work. That keeps the new business owner from repeating the same mistakes.
- Name recognition. A well-known name can bring customers into the business and provide a competitive advantage for the franchisee.
- Training. A franchisor can provide a regimented training program to teach the franchisee about the business operation and industry even if the franchisee has no prior experience. Training is usually done at the office of the franchisor and at the local location.
- Support. A franchisor can provide managerial support, software support and problem-solving capabilities for its franchisees. This support is there during the start up phase, but also continues for the term of the franchise; usually 10 or 20 years.
- Economies of scale. Cost savings on inventory items can be passed on to the franchisee from bulk purchase orders made by the franchisor.
- Advertising. Cooperative advertising programs can provide national exposure at an affordable price.
- Financing. A franchisor will generally assist the franchisee in obtaining financing for the franchise. Lenders are more inclined to provide financing to franchises because they are less risky than businesses started from scratch. In fact, the SBA keeps a list of the “approved franchises.”
- Site selection. Most franchises will assist the franchisee in selecting a site for the new franchise location. Having the right location is all powerful and most franchises have a connection to a local real estate professional to assist in site selection.
- Vested Interest / Royalty. Most franchises charge a royalty. This fee, charged for the use of the name and the ongoing support given to the franchisee, is usually around 5% of the franchisee’s sales. In other words, for every dollar the franchisee makes, the franchisor gets a nickel. This gives the franchisor a direct interest in the success of the franchisee. The more successful the franchisee, the more successful the franchisor. In simple terms, the more money the franchisee makes; the more money the franchisor makes. Thus, the commonly heard phrase; “In business FOR yourself, but not BY yourself”.
It may be advisable to have an attorney review the legal documents. It is important, however, that the attorney you hire is familiar with the business buying process and has the time available to handle the paperwork on a timely basis. If the attorney does not have experience in handling business sales, you may be paying for the attorney’s education. Most business brokers have lists of attorneys who are familiar with the business buying process. An experienced attorney can be of real assistance in making sure that all of the details are handled properly. Business brokers are not qualified to give legal advice.
However, keep in mind that many attorneys are not qualified to give business advice. Your attorney will be, and should be, looking after your interests; however, you need to remember that the seller’s interests must also be considered. If the attorney goes too far in trying to protect your interests, the seller’s attorney will instruct his or her client not to proceed. The transaction must be fair for all parties. The attorney works for you, and you must have a say in how everything is done.
If you know someone who has owned their own business for a period of time, he or she may also be a valuable resource in answering your questions about how small business really works.
You have to make the final decision; that “leap of faith” between looking and actually being in business for yourself is a decision that only you can make!Read More
A professional business broker can be helpful in many ways. They can provide you with a selection of different and, in many cases, unique businesses, including many that you would not be able to find on your own. Approximately 90 percent of those who buy businesses end up with something completely different from the business that they first inquired about. Business brokers can offer you a wide variety of businesses to look at and consider.
Business brokers are also an excellent source of information about small business and the business buying process. They are familiar with the market and can advise you about trends, pricing and what is happening locally. Your business broker will handle all of the details of the business sale and will do everything possible to guide you in the right direction, including, if necessary, consulting other professionals who may be able to assist you.
Your local professional business broker is the best person to talk to about your business needs and requirements.Read More