|Patriot Business Advisors
Advisors is a
for both buyers and
sellers of business
of any size!
- Joseph, Brick, NJ
Who is the Buyer?
Buyers buy businesses for many of the same reasons that sellers sell businesses. It is important that the buyer is as
serious as the seller when it comes time to purchase a business. If the buyer is not serious, the sale will never close.
Here are just a few of the reasons that buyers buy businesses:
• Laid-off, fired, being transferred (or about to be any of these)
• Early retirement (forced or not)
• Job dissatisfaction
• Desire for more control over their lives
• Desire to do his or her own thing
A Buyer Profile
Here is a look at the make-up of the average individual buyer looking to replace a lost job or wanting to get out of an
uncomfortable job situation. The chances are he is a male (however, more and more women are going into business
for themselves, so this is rapidly changing). Almost 50 percent will have less than $100,000 in which to invest in the
purchase of a business. In many cases the funds, or part of them, will come from personal savings followed by
financial assistance from family members. The buyer will never have owned a business before, and most likely will
buy a business he or she had never considered until being introduced to it.
Their primary reason for going into business is to get out of their present situation, be it unemployment or job
disagreement (or discouragement). The prospective buyer wants to do their own thing, be in charge of their own
destiny, and they don't want to work for anyone. Money is important, but it's not at the top of the list; in fact, it
probably is in fourth or fifth place in the overall list. In order to pursue the dream of owning one's own business, the
buyer must be able to make that "leap of faith" necessary to take the risk of purchasing and operating their own
Buyers who want to go into business strictly for the money usually are not realistic buyers for small businesses. Keep
in mind the following traits of a willing buyer:
* The desire to buy a business
* The need and urgency to buy a business
* The financial resources
* The ability to make his or her own decisions
* Reasonable expectations of what business ownership can do for him or her
What Do Buyers Want to Know?
This may be a bit premature since you may not have decided to sell, but it may help in your decision making process
to understand not only who the buyer is, but also what he or she will want to know in order to buy your business.
Here are some questions that you might be asked - and, should be prepared to answer:
* How much money is required to buy the business?
* What is the annual increase in sales?
* How much is the inventory?
* What is the debt?
* Will the seller train and stay on for awhile?
* What makes the business different/special/unique?
* What further defines the product or service? Bid work? Repeat business?
* What can be done to grow the business?
* What can the buyer do to add value?
* What is the profit picture in bad times as well as good?
Copyright 2007 Business Brokerage Press
A Few Things to Consider
Buyers Want Cash Flow
The first thing to keep in mind is that the vast majority of buyers want to buy cash flow. Sit down with your accountant
or bookkeeper and begin to get your financial statements in order, with cash flow the order of business. Cash flow is
not the same thing as profit. Most buyers look at the profit and loss statement or tax return, as well as owner or
family compensation. They will consider any excess compensation to employees and family. Buyers will also look at
large, one-time expenses such as a new computer system or remodeling. They will consider non-cash items like
and amortization. Interest expenses will be reviewed, as will owner prerequisites. These are items that a professional
business broker considers when advising a selling client on a selling price.
What about the Internet? The Internet is a real "buzz" word - and if its use is appropriate for your business, then
developing a web site is important not only to your on-going business, but also to a buyer. Many buyers are
conscious of what the Internet is doing for many businesses. If you have a web site for your business, it could be a
Appearances Do Count
The time to replace that old worn-out piece of equipment is before you decide to sell. Don't assume that a new owner
will want to do it or that the price will be slightly lower because you haven't replaced it. The time to "spiff up" the
business is now, even if you aren't selling. Fix the sign, replace the carpet, paint the place - make it look good. Even
if you're not selling, it's just plain good for business, and you never know when the time to sell occurs. Keep-in-mind
that anything that increases sales also increases profits and the all-important cash flow!
Everything Has Value
There are other things that add value to your business. Don't discount the value of customer lists, proprietary
products and/or techniques, well-maintained equipment, secret recipes, customized software programs, or good
employees. These are termed "off-balance sheet items," and although not used in most pricing models, they add to
value. Look at your business very carefully so you don't overlook those items that make your business more
attractive to the buyer.
Eliminate the Surprises
Long before you put your business on the market eliminate the surprises! Review every facet of the business and
remedy any problems that could appear during the sale process. No one likes surprises - most of all potential
buyers. Whether legal, accounting, environmental, or anything else - solve it now.
This may sound like something that should have been done when the business first started, so it may be "after-the-
fact". You should create an operations manual. You may already have ,started one years ago, or simply, have
thought of doing one. Now is the time. It may actually create added value to the business. Even if it doesn't, it will
impress buyers that you have your business "act" together and should help you sell more quickly and effectively.
Preparing a manual on how to operate your business can also be helpful even if you don't want to sell. It doesn't
have to be elaborate, just cover the basics. A collection of ads that you have placed a catalog or sample of products,
publications, or menus (if the business is food related) is also impressive. Include anything to do with the business
that might be helpful for a new owner. However, don't include anything that is proprietary, such as customer lists,
suppliers or secret recipes, etc.
Copyright 2007 Business Brokerage Press
You Can Help!
We look forward to working with you in finding a suitable buyer for your business. You, as the seller, are an integral
part of the total marketing program. We would like to offer a few friendly recommendations that will help in our
marketing efforts. We have checked those items that we think will be especially applicable to your type of business.
It might also be helpful if you took a good look at your business from the perspective of a buyer. Try to put yourself
in the place of a prospective purchaser of the business. What would you do to make it more attractive or more
saleable? Obviously, the financial records of your business are critical to the sale of your business, but how it looks
is also important. First impressions really count! If a potential buyer doesn't like the appearance of your business,
the rest of it may never get a chance. If you have any questions, please don't hesitate to call us. It's only by working
together that we'll get the best results.
You might want to check the following to see if any of them are applicable:
* Keep normal operating hours. There may be a tendency to "let down" when you put your business up for sale.
However, it's important that prospective buyers see your business at its best.
* Repair signs, replace outside lights, etc. You don't want your business to look as if it has been neglected.
* Maintain inventory at a constant level. If you let your inventory slide, your business will look neglected. If anything,
increase it so your business will look busy.
* Remove items that are not included in the sale and unnecessary items, especially if inoperative.
* Repair non-operating equipment or remove it if you are not using it.
* Tidy-up outside premises.
* Spruce-up the inside of the business.
Copyright 2007 Business Brokerage Press
Common Seller Questions
How long does it take to sell my business?
It generally takes, on average, between five to eight months to sell most businesses. Keep in mind that an average is
just that. Some businesses will take longer to sell, while others will sell in a shorter period of time. The sooner you
have all the information needed to begin the marketing process, the shorter the time period should be. It is also
important that the business be priced properly right from the start. Some sellers, operating under the premise that
they can always come down in price, overprice their business. This theory often "backfires," because buyers often
will refuse to look at an overpriced business. It has been shown that the amount of the down payment may be the
key ingredient to a quick sale. The lower the down payment, generally 40 percent of the asking price or less, the
shorter the time to a successful sale. A reasonable down payment also tells a potential buyer that the seller has
confidence in the business's ability to make the payments.
Why is seller financing so important to the sale of my business?
Surveys have shown that a seller, who asks for all cash, receives on average only 70 percent of their asking price,
while sellers who accept terms receive on average 86 percent of their asking price. That's a difference of 16
percent! In many cases, businesses that are listed for all cash just don't sell. With reasonable terms, however, the
chances of selling increase dramatically and the time period from listing to sale greatly decreases. Most sellers are
unaware of how much interest they can receive by financing the sale of their business. In some cases it can greatly
increase the amount received. And, again, it tells the buyer that the seller has enough confidence that the business
can, indeed, pay for itself.
What happens when there is a buyer for my business?
When a buyer is sufficiently interested in your business, he or she will, or should, submit an offer in writing. This offer
or proposal may have one or more contingencies. Usually, they concern a detailed review of your financial records
and may also include a review of your lease arrangements, franchise agreement (if there is one), or other pertinent
details of the business. You may accept the terms of the offer or you may make a counter-proposal. You should
understand, however, that if you do not accept the buyer's proposal, the buyer can withdraw it at any time.
At first review, you may not be pleased with a particular offer; however, it is important to look at it carefully. It may be
lacking in some areas, but it might also have some pluses to seriously consider. There is an old adage that says,
"The first offer is generally the best one the seller will receive." This does not mean that you should accept the first,
or any offer -- just that all offers should be looked at carefully.
When you and the buyer are in agreement, both of you should work to satisfy and remove the contingencies in the
offer. It is important that you cooperate fully in this process. You don't want the buyer to think that you are hiding
anything. The buyer may, at this point, bring in outside advisors to help them review the information. When all the
conditions have been met, final papers will be drawn and signed. Once the closing has been completed, money will
be distributed and the new owner will take possession of the business.
What can I do to help sell my business?
A buyer will want up-to-date financial information. If you use accountants, you can work with them on making current
information available. If you are using an attorney, make sure they are familiar with the business closing process and
the laws of your particular state. You might also ask if their schedule will allow them to participate in the closing on
very short notice. If you and the buyer want to close the sale quickly, usually within a few weeks, unless there is an
alcohol or other license involved that might delay things, you don't want to wait until the attorney can make the time
to prepare the documents or attend the closing. Time is of the essence in any business sale transaction. The failure
to close on schedule permits the buyer to reconsider or make changes in the original proposal.
What can business brokers do - and, what can't they do?
Business brokers are the professionals who will facilitate the successful sale of your business. It is important that you
understand just what a professional business broker can do -- as well as what they can't. They can help you decide
how to price your business and how to structure the sale so it makes sense for everyone -- you and the buyer. They
can find the right buyer for your business, work with you and the buyer in negotiating and every other step of the
way until the transaction is successfully closed. They can also help the buyer in all the details of the business buying
A business broker is not, however, a magician who can sell an overpriced business. Most businesses are saleable if
priced and structured properly. You should understand that only the marketplace can determine what a business will
sell for. The amount of the down payment you are willing to accept, along with the terms of the seller financing, can
greatly influence not only the ultimate selling price, but also the success of the sale itself.
Now that you've completed our selling tutorial, be sure to download visit our forms section to download any forms you
may need to move along the selling process.
Copyright 2007 Business Brokerage Press