Rules for how to sell a business are different today than they were just a few years ago before the mortgage meltdown and economic crisis that followed. The difficulty of obtaining purchase money loans and greater buyer uncertainty because of the fragile state of the economy have made it necessary for owners of small and mid-sized businesses, if they want to sell successfully, to employ strategies that address current problems. Four important principals that help achieve a sale are:
1. Prepare the business more completely. Along with the mood of extreme buyer caution in this market, comes a lower threshold of tolerance for companies being sold that are not presented in the best possible way. That means a seller needs to assemble key documents--three years of financial information, copies of premises and equipment leases, and a list of capital assets included in the sale--before the business is offered to prospective buyers. It's not a good idea to wait until a buyer is found and requests that material. By then it may be too late.
Preparation also calls for making certain that business premises are clean so that it shows well, getting all equipment working correctly, and settling any unresolved lawsuits or customer complaints that might reflect negatively on the business.
2. Super preparation is also advised. In addition to getting the basics taken care of, entrepreneurs who know how to sell a business in this economic climate are going to the trouble of contacting local business banks, particularly the SBA-backed lending institutions, to get the business "pre-qualified" for a loan. If lenders say they are willing to lend money for purchase of your business by a qualified applicant, it speeds the SBA loan application process and helps to reinforce the value of the company being offered.
Another form of super-preparation involves drafting a marketing plan that, when shown to prospective buyers, provides a blueprint a new owner might follow to increase the revenues. And the company that comes with a marketing plan is more appealing, because it demonstrates the competence of management--reflecting favorably on the viability of the business.
3. Be prepared to help finance the transaction. Several sellers in this market who initially wanted an all-cash deal, have discovered that a business not attracting much attention can quickly become more appealing to buyers if the seller is willing to carry back part of the purchase price. And the owner with few buyer prospects for a company offered with a small seller financing component, say 10%, is likely to find that increasing the size of the note--to 30% of the price for example--is how to sell a business that was not generating much interest. Seller financing can result in a sale to a qualified buyer--one who was not ready or not willing to invest the total purchase price plus the working capital needed to take over the business. Also, a seller's willingness to help finance the deal can be the factor that persuades other lenders to participate. In most cases, for example, an application for purchase funds through an SBA loan program has little chance of being approved if the seller does not have "skin in the game."
4. Incorporate an earn out agreement in the sale. This approach often is useful in bridging the gap between a buyer and seller who have different ideas about what the business is worth. The basic idea of this strategy is for the initial sales price to be a figure below what is requested by a seller, who feels the business is improving and will soon be worth more. In return for the seller's agreement with the lower price, the buyer agrees that the business can be re-valued upward, if it does generate higher revenues as predicted by the seller. This provision is founded on a deal with some seller financing, and the contract specifies that the buyer's payments would be adjusted to correspond with the increased value.
These suggestions for how to sell a business in 2011 have been employed by owners who were successful at selling over the past several months, while other entrepreneurs who've had their businesses on the market for some time, still are trying to find a qualified buyer and make a deal.
About the Author: For over 25 years Founder and CEO of BizBen.com, Peter Siegel, MBA has been consulting California small business owners, business buyers, business brokers & agents assisting them with selling and buy businesses topics & issues. Peter Siegel, MBA can be reached direct at 925-785-3118.
|Helpful Resources To Assist In Selling And Buying California Businesses|
|Elizabeth McGovern: Escrow Services - San Francisco Bay Area
McGovern Escrow Services, Inc., is a leading independent escrow company. We are a trusted partner with our clients, assisting them through the tangled bulk sale & liquor license transfer process. We provide attentive, quality & innovative customer service. Phone Elizabeth McGovern at 415-735-3645.
|Diane Boudreau-Tschetter: Escrow & Bulk Sale Services - CA
California Business Escrow, Inc. is a full service independent escrow company serving all of California and has expertise in a wide range of escrows. Our team prides itself on providing an exceptional escrow experience. For more info phone Diane Boudreau-Tschetter at 888-383-3331 or 209-838-1100.
|Brad Steinberg, Business Broker: Laundromat Specialist
PWS is the leading laundromat broker in California. Since 1968 PWS has brokered over 2,500 laundromat sales. With over 90 employees dedicated to the coin laundry industry, PWS has 18 licensed agents, a 3 person in-house finance department, 10 service technicians and a 20 person parts department.
|William F. Ziprick, Attorney: Legal Services For Buyers And Sellers
Through creative problem solving, attention to detail, accessibility, & understanding that unnecessary delay is often a deal killer, I work closely with my clients and other professionals to consistently achieve a high rate of closings. Office: 909-255-8353, Cell: 509-951-7230.
|Janet Carrera: Escrow & Bulk Sale Service - SF Bay Area
Redwood Escrow Services, Inc. is a full service, licensed independent escrow company. We are EAFC Fidelity bonded, fully insured & licensed with the Department of Corporations. Committed to offering our clients the most comprehensive variety of escrow services available. Phone Janet at 510-247-0741.
|Shalonda Chappel: Escrow & Bulk Sale Services - Southern California
Escrow services to brokers/agents, sellers, & buyers. Established 43 years. Extraordinary service. Experienced with handling difficult transactions. One stop for all your escrow needs: Bulk sales, lien searches, UCC searches, liquor license transfers, publishing & recording services. 951-808-3972.
|Helen Yoo, New Century Escrow - Escrow Services In Southern California
New Century Escrow, Inc. is a fully licensed & bonded independent escrow company. Over 20 years combined experience in handling bulk escrow transactions. Multi-lingual staff that speaks your language, including Korean, Chinese, Vietnamese. Call Helen Yoo direct at 626-890-1151.
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