The first step towards successfully selling a business is finding a qualified business broker to work with. Sellers should also ask themselves important questions about their motivations for selling. Freelance writer Troy Lambert outlines some crucial questions in an article published recently by Unbound Northwest and the Good Men Project.
1. Are you ready?
Such a simple and powerful question: “Are you ready?” For example, are your financial reports ready to show? If you’re like most businesses, your accounts are set up to provide the best tax advantage, but that usually doesn’t show all the money you make or have the potential to make. To get top dollar for your business, you’re going to have to “recast” your books, usually with the help of your accountant.
2. What’s the business worth?
3. How healthy is my industry?
Prospective sellers should be brutally honest when they answer this question: “How’s the health of my industry?” You’d better believe that your broker, bankers and prospective buyers will be asking this question as part of their due diligence. If your industry is in a transition period, for example, then it might be better to wait until a better time to sell.
4. How long will it take?
Selling a business can take a long time. If you need to sell quickly, you are likely to get less money and less favorable terms. Successfully selling your business may even mean that you have to stay on and work with the new owner during a transition period. The process can take a year or more, so plan for that.
5. Who is my buyer?
You don’t want to waste a lot of time with potential buyers who are simply not a good fit. Professional business brokers understand this and will prequalify buyers, ensuring they have the finances to buy your business and the right skills or certifications to run the business. Finding the right buyer for your business helps to ensure that a deal will be finalized. Brokers also understand the necessity of confidentiality in marketing your business.
6. How will I get paid?
Even if you get your asking price, you may not walk away with a wad of cash. Before you put your business on the market, decide how you want to be paid and how flexible you can be in terms of payment. Are you willing to finance part of the deal? Will you accept sales-based payouts? Balloon payments over time? Payment in the form of stocks or a stake in the business?”
For most sellers, selling a business will stand as the largest financial decision of their lives. With this realization comes more than a little pressure.
Having good advice is critical to a successful sale. A seasoned and experienced business broker understands what it takes to buy and sell a business. Working with a business broker is an easy and efficient way to begin the process of selling your business. Brokers know what it takes to successfully sell a business and can help you answer these questions and many more.
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A business plan, which projects 3-5 years ahead, is your road map for your business. It outlines how a company plans to reach yearly milestones, including revenue projections.Read More
Starting April 1, the SBA is changing its rules for financing partner buyouts, and GABB affiliate Susan Kite has provided a more detailed explanation of the changes. Kite, a Vice President and SBA Business Development Officer at Renasant Bank, says that the new SBA rules are designed to prompt borrowers to put more of their own cash money to finance partner buy-outs. SBA loans are frequently used in the purchase of businesses.
Victor A. Diaz, an attorney who is Managing Partner of Starfield & Smith’s Florida office, wrote in a recent client newsletter that the SBA tweaked its 7(a) lending program “as part of its overall goal of increased oversight and enhanced performance of its portfolio.”
The new rules “require greater use of cash (rather than debt) to finance partner buyouts.” In the regulation labeled SOP 50 10 5 (J), the SBA described “mandatory minimum cash equity injections from borrowers for loans used to finance changes of ownership.”
Earlier, the SBA issued a notice to prevent lenders from financing “more than 90% of the business purchase price or finance the acquisition of a partner’s interest who had not been sufficiently active in the business.” Under SOP 50 10 5 (K) effective April 1, 2019, the SBA has added two requirements before a borrower may finance more than 90% of the purchase price of a partner buyout. The two new requirements, according to Mr. Diaz:
(a) The remaining owner(s) must certify that he/she has been actively participating in the business operation and held the same ownership interest in the business for at least the past 24 months (Lender must include in the credit memorandum confirmation that the Borrower has made the required certification and retain such certification in the file); and
(b) The business balance sheets for the most recent completed fiscal year and current quarter must reflect a debt-to-worth ratio of no greater than 9:1 prior to the change in ownership.
Mr. Diaz writes that “in the event the Lender is unable to document that both (a) and (b) above are satisfied, the remaining owner(s) must contribute cash in the amount of at least 10% of the purchase price of the business, as reflected in the purchase and sale agreement. SOP 50 10 5 (K), page 185.”
Because of this change, “the need for additional cash equity will be assessed not on a forward-looking, pro-forma basis,” Mr. Diaz writes. “Instead, prior to the change of ownership, the business must demonstrate it is not over-leveraged. If the financial evaluation does not meet this threshold, additional cash equity will be required from the borrower in the amount of 10% of the purchase price, which reduces the possibility of the borrower utilizing debt rather than cash to finance the partner buyout.”
The SOP 50 10 5(K) will become effective April 1, 2019, and will apply to all applications received by SBA on or after that date. For more information on changes of ownership, please contact Victor at firstname.lastname@example.org or at 407.667.8811.
Thanks to Susan Kite for updating us on this rule.Read More
How should the purchase of a business be structured? This is a point that you’ll want to address early in the sale process. For most people, buying or selling a business is one of the most, if not the most, important business decisions that they will ever make. Therefore it is vital not to wait until the last minute to structure your deal. Let’s turn our attention to the most significant questions that you need to answer when entering the sales process.
1. What is My Lowest Price?
Ask yourself “What is the lowest price I’m willing to take?” If your get an offer, you don’t want to sit around trying to decide if you can take a given offer at a given price. You should be ready to jump if the right offer is made.
2. What are the Tax Implications?
Seriously consider the tax consequences of any sale. Taxes are always a fact of life, and you need to work with a professional, such as an accountant or business broker, to understand the tax implications of any decision you make.
3. What are the Interest Rates?
If you get a buyer, what is an acceptable interest rate for a seller financed sale? Working with one of the GABB’s affiliate lenders is a great way to find the most attractive interest rate.
4. Are there Additional Costs Involved?
Do you have any unsecured creditors that have not been paid off? Additionally, you’ll also want to determine whether or not the seller is willing to pay for a part of the closing costs.
5. Will the Buyer Need to Assume Debt?
Finally, will the buyer need to assume any long-term or secured debt? The issue of long term and/or secured debt is no small issue. Be sure to clarify this important point well in advance. Also keep in mind that favorable terms typically translate to a higher sales price.
Business brokers are experts at buying and selling all kinds of businesses. When it comes time to structure a deal that benefits both the buyer and the seller, business brokers are invaluable. At the end of the day, working with a business broker is one of the single biggest steps you can take to ensure that your business is sold for the most attractive price and sold as quickly as possible.
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Just before retirement is not the best time to prepare your business to sell for an attractive price. Savvy business owners spend years thoughtfully preparing to transition out of business ownership.
UGA Small Business Development Center consultant Daniel McCoy discussed ways that small businesses can prepare for the day when they want to sell their business.
Here’s a link to an audio recording of Mr. McCoy’s remarks.
His PowerPoint Presentation is here. How to Prepare a Business to Sell
The Tuesday, Feb. 26 meeting was preceded by a free networking breakfast sponsored by GABB Board member Kim Eells, Vice President of SBA Lending at Renasant Bank and Susan Kite, Vice President of SBA Lending at Renasant Bank.
Mr. McCoy was an SBA Lender from 2014 to 2017. He joined the University of Georgia Small Business Development Center (SBDC) in September of 2017, after starting his own business of tax preparation and loan packaging. His business experience consists of several years in retail upper management, 19 years in commercial lending, three years in insurance, and four yuears as a small business owner. He holds an MBA in Accounting from Benedictine University, a B.S. in Organizational Management from Covenant College and an Associates degree in Arts from Reinhardt University. His specialties include human resources, financial management, customer service, and business planning and forecasting.
The GABB is the state’s largest and oldest association of professionals who specialize in brokering the purchase and sale of businesses and franchises. Broker members help owners determine the asking price of their business, create marketing plans and strategies for selling their business, identify and qualify buyers, and have the knowledge, experience and skills needed to help maintain the confidential nature of the process. The professionals of GABB relentlessly pursue professional development so they can provide superior, ethical services for all customers and clients. Affiliate members include bankers, lawyers, appraisers, insurers and other professionals who work closely with brokers to help owners and buyers get to the closing table.
For more information about GABB, please contact GABB President Dean Burnette at 912-247-3209 or email@example.com, or GABB Executive Director Diane Loupe at firstname.lastname@example.org or 404-374-3990.Read More