Top Ten Must-dos When Selling a Business
By Loren Schmerler of Bottom Line Management, Inc.
Are you ready to sell your business? Thinking about starting new adventures? Certain changes you may make now can help you increase your business value. Below are top 10 tips on how to prepare your business for sale from expert, Bottom Line Management, Inc. founder, Loren Marc Schmerler, a Certified Professional Consultant and Accredited Professional Consultant.
Top Ten Must-dos When Selling a Business
- Know why you want to sell your business. Make sure it’s a good reason and not just to dump your problems into someone else’s lap.
- Give some thought as to what you will do with your time after your business sells. Finding yourself with nothing to do can be very demoralizing.
- Make certain that your taxes are current. This includes sales taxes, unemployment taxes, payroll taxes, state income taxes and federal income taxes.
- Document all your policies, procedures and controls. Not only will this help during the transition period when you train the buyer, but this will make your business more appealing to the corporate buyer who is accustomed to formal documentation.
- If possible, develop and train a strong “second in command” who can fill in for you when necessary. The buyer might be hands-on or hands-off, and having a strong assistant provides flexibility. Many business sales are lost when there is no depth of management.
- Review each employee’s strengths and weaknesses and show when they were last reviewed and when they next need to be reviewed by the new owner. Not reviewing an employee on time can cause anxiety and diminish loyalty.
- Make sure your financial statements and tax returns are “bullet proof.” You do not want the transaction to fall apart when the buyer or buyer’s CPA finds discrepancies.
- Prepare a business and marketing plan that will help a new owner understand where the opportunities for growth exist. This plan should include an Executive Summary that explains why the business was started, how it progressed to its current status and what a new owner should do to take it to the next level.
- Select an asking price that is based on reality – not fantasy. Be able to justify it based on a multiple of Owner’s Discretionary Cash Flow. Bad reasons include “it’s what I want”, “this is what I have in it”, “this is what I owe the banks” “I have put blood, sweat and tears over x years into the business.”
- Be willing to be flexible on price, terms or both. Deal structure can make or break a transaction. When each party to the transaction is willing to bend, there is a higher probability of success.
Do You Really Understand Your Customers?
The time you invest getting to know and understand your customers is time very well spent. The feedback you get is gold, pure gold. Yet, there are other reasons why this is a prudent move. Let’s take a look at some of the key reasons you should learn more about your customers and their specific needs.
Today’s world has become increasingly impersonal. Most of us spend a shocking amount of time looking at one type of digital screen or another. Personal interaction isn’t what it once was, and you can use that fact to help build your business.
The Ultimate Form of Customer Service
Good old fashioned human contact goes a long way when it comes to keeping customers happy, loyal and returning. The personal touch can go a long way towards building your business by improving customer service. Customer service has become, in general, a very impersonal experience for most people in the modern world.
In most businesses, the owner is more of an impersonal theoretic concept that an actual being; after all, how often do you meet the owners of the businesses that you frequent? As a business owner, when was the last time that you got on the phone or had lunch with a good customer? The truth is that customers and clients enjoy working directly with owners, and it makes them feel more connected with a business. An owner who is working directly with his or her customers or clients is engaged in a powerful form of customer service.
Building Relationships
Investing time to build your business’s key relationships is a prudent step. When was the last time that you took a moment to contact your accountant, banker, legal adviser or other key people that support your business, such as key suppliers? The time you invest communicating with these key people and institutions is time well-spent especially should a problem ever arise. Since most communication is now done online, a handwritten thank you note or a quick phone call can go a long way towards maintaining and building relationships.
It is important to rise above all the background noise of life. One of the best ways of doing so is to invest the time to add a personal touch.
Owning and operating a business shouldn’t be a stealthy activity. Instead, you the business owner should be out front meeting with customers, suppliers and other key people. Running a business isn’t a “backroom” operation, so go out there and meet your customers and other key people! This is how you build and protect your business.
Copyright: Business Brokerage Press, Inc.
Read MoreHow to Get Approved for an SBA Loan to Buy a Business-April 25 GABB meeting
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.
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 georgiabusinessbrokers@gmail.com or GABB President Mike Ramatowski at 770-634-0428.
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SBA Lenders Offer Advice on Getting Loans Approved
SBA lenders Kim Eells, Cheryl Beer and Susan Kite presented at the April GABB meeting.
If you want to get an SBA loan to buy or sell a business, 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.
That advice highlighted the presentation by veteran SBA lenders to the Georgia Association of Business Brokers on April 26.
Bob Smith of HealthMarkets.com was the breakfast sponsor.
The program was presented by GABB Platinum Sponsor Cheryl Beer, Vice President of SBA Lending at the Piedmont Bank; Susan Kite, SVP and Managing Director of SBA Lending at Signature Bank ; and Kim Eells, Vice President, Business Development Officer of the Brand Bank.
GABB SBA Power Point Presentation
SBA Loan Program Overview
- SBA 7(a) – $5,000,000 maximum loan amount
- Small by SBA Size Standards
- Operating Company must be “For Profit”
- 15X Debt Service Coverage, “DSC” (including all affiliates)
The SBA 7(a) program has a $5 million maximum, with 1.15 x debt service coverage, and operating company must be for profit.
Equity injection: minimum usually 20%, but other factors may affect the percentage, including cash flow, collateral and experience.
The maximum term of the loan is 10 years for purchase of a business only, 25 years for real estate, and a weighted average for combined business and real estate.
The maximum rate for the loan is prime plus 2.75%
Collateral required includes business assets and personal assets of guarantors.
SOP rules:
- The buyer must purchase 100% of the ownership interest in the business;
- The seller cannot remain an officer, director, stockholder or key employee of the business. If a short transitional period is needed, the small business may contract with the seller as a consultant for a period not to exceed twelve months;
- If the purchase price of a business includes intangible assets in excess of $500,000, the borrower and/or seller must provide a combined equity injection of at least 25% of the purchase price of the business. In order for the seller financing to qualify as equity injection, the seller note must be on full standby of principal and interest payments for a minimum of two years. If the total “equity” is greater than 25%, there can be two seller notes. For example, if the buyer has 20% equity and the seller provides 20% seller financing, there can be two seller notes, one for 5% on full standby for two years and one for 15% with immediate P+I payments;
- If there is business real estate as part of the change of ownership, the real estate cannot be financed separately by a non-SBA guaranteed loan (unless it is an SBA 504 project) to avoid the 25% cash injection;
- The lender must obtain a current business valuation from an independent third party chosen by the Bank to justify the purchase price.
How to get your loans approved quickly
- Get Seller Information as quickly as possible after signing listing agreement
- Last 3 years 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
- Agings 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)
- 4506-T, properly signed
- 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 to keep them current (every 60 – 90 days)
Buyer Info
- Get Buyer information as soon as possible
- Last 3 Years 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 1-3)
- Manage Buyer expectations
- They 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 us life insurance
- If your buyer has ever been arrested, they need to tell us early so we can get them cleared and processed
- The loan process is not like buying a home – it may take longer than they expect.
Lender Info
- Use a lender that knows business acquisition SOP rules
- Get with us early and use us as a resource
- Realize that to us, DSC is more important than SDI
- Have your Seller and/or Buyer prepared
- with an organized application package
- with realistic expectations about the loan process
- The process will be much faster when information is provided quickly when asked
The Panelists also discussed three examples of loans they encountered.
Example 1:
30 year old niche therapy practice that provides occupational therapy, physical therapy and Speech-Language therapy to school systems.
Buyer has owned a business in home health care.
Total Project Costs of $1,950M included Intangible Assets of $1,600M, Working Capital of $300M, Closing Costs including SBA Guaranty Fee of $50M – Seller Financing of $350M, Buyer’s Cash $100M – SBA Loan $1,500M
Only collateral was a 2nd lien on personal residence.
Example 2:
35-year old Commercial Landscaping company – 3 owners in 60s and retiring. Sales price of $1,605,000 included property, trucks, goodwill. Property valued at $600,000 assets valued at $280,000 with $805,000 goodwill. 2 loans: Building loan at P+2.5% for 25 years and business acquisition at P+2.75% for 10 years with 6-months interest-only for both. Financing structure: $540,000-property, $448,000-business and assets, $136,000-working capital and closing costs, $263,000 – borrower cash, and $360,000 seller note. Buyer was ready to close with out-of-state lender when his partner pulled out, changing deal. We closed 35 days after being notified that the buyer wanted us to consider the deal.
Example 3:
distributor of parts for communications companies that service cell phone towers.
Two husband/wife teams with varied sales and management experience
Total $1,211 included $918 GW, seller 225, equity $269, loan $717, 10 years, P + 2.5, $100 Capline
Collateral included personal assets of Guarantors
Why Loan Applications Get Rejected
Delinquent credit history – 650 minimum score
SBA eligibility issues
- 912 issues
- Presently under indictment, parole or probation
- Ever been charged with and or arrested for any criminal offense other than a minor motor vehicle violation? Include offenses which have been dismissed, discharged or not prosecuted.
- Ever been convicted, placed on pretrial diversion, or placed on any form of probation, including adjudication withheld pending probation for any criminal offense other than a minor vehicle violation?
- Not citizen or permanent resident
- Problems with Franchisor
- SBA failure rate for franchise
- Franchisor has reputation for not supporting its franchisees
- Talk to other franchisees
- Talk to financial institutions who have financed particular franchise
- Unrealistic projections
- Use financial advisor to prepare business plan and projections
- Breakeven analysis
- Other issues
- Insufficient working capital and equity
- Additional support
- Spousal income
- Strong franchisor support
- Strong location
- Strong credit history
- Liquidity
- Management experience
Finally, if you get turned down by a Bank, ask for the reason. The information may help you with another lender or for your next request
Contact information for presenters:
Susan Kite
404-256-7734
Kim Eells
770-339-2088
Cheryl Beer
678-576-9392
Cheryl.beer@piedmontbankonline.com
Read MoreDon’t Want to Get Sued? Come to GABB on Tuesday, Feb. 23
Lawrence Domenico is the kind of lawyer you hire when you litigate, or sue someone. And he’s represented a lot of Georgia business brokers in disputes over the years.
On Tuesday, Feb. 23, Larry will offer advice worth hundreds, if not thousands, of dollars to members of the Georgia Association of Business Brokers and their guests. Namely, how NOT to need to hire Larry or someone like him. How to avoid legal disputes will be the topic of the GABB meeting on Feb. 23. The GABB, the state’s only professional association dedicating to buying and selling businesses and franchises, will meet at 10:30 a.m. at the South Terraces Conference Center, preceded at 9:45 a.m. by a free light breakfast and networking session. The South Terraces Conference Center is at 115 Perimeter Center Place, Atlanta, near Perimeter Mall. The meeting is open to the public at no charge.
Samantha Martin, SBA lending specialist with the Fifth Third Bank, is sponsoring the meeting.
Mr. Domenico is a managing partner of the law firm of Mozley, Finlayson & Loggins. He practices extensively in the areas of commercial and business litigation, products liability defense, and general litigation. Mr. Domenico also has extensive experience in assisting start up and existing businesses. In addition, Mr. Domenico has broad experience in alternate forms of dispute resolution including arbitration and mediation.
Mr. Domenico received a B.A., cum laude, from the University of the South in 1985. He attended the University of Georgia School of Law where he received a J.D., cum laude, in 1988. Mr. Domenico is a member of Phi Beta Kappa and Omicron Delta Kappa honorary fraternities. He belongs to the Atlanta and American Bar Associations, the State Bar of Georgia, and the Defense Research Institute. Mr. Domenico is active in a number of civic organizations and is a member of the 1995 class of Leadership DeKalb and the Rotary Club of Dunwoody.
The Georgia Association of Business Brokers (GABB) maintains a website that lists hundreds of businesses and franchises for sale throughout Georgia in a variety of fields, including automotive, business services, child care, cleaning, construction, electronics equipment, fitness, flooring, floral, food, gas stations, landscaping, manufacturing, medical, shipping, restaurants, retail, security, signs, and businesses related to the internet.
According to GABB President Greg DeFoor, selling a business is a complicated process with multiple steps and a lot of moving pieces.
“Our broker members are licensed business brokers, whereas everyone in the industry may not be properly licensed,” said DeFoor, who owns DeFoor Business Services, Inc. “GABB members benefit from continuing education, networking, promotion of professionalism and ethics in the industry, research tools, and forms prepared by a team of attorneys specifically for our association.”
“We are the go-to organization for business sales and acquisitions as a result of our dedication to the profession and our members being among the best in the state at what we do,” said DeFoor. “Our members have represented probably over a thousand transactions, and we have a dedicated membership of business brokers, lenders, attorneys and other professionals to assist business buyers and sellers at every step of the process. We work behind the scenes and go mostly unnoticed, but we’re an integral part of Georgia’s business community.”
For more information about GABB, email georgiabusinessbrokers@gmail.com or call 404-374-3990.
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