Author: Sara

Naturally, sellers want the highest price they can get for their business. In come cases, however, it might not be the best deal. For this reason, every offer should be scrutinized carefully. When an offer is presented, the first thing a seller looks for is the price. If it is lower than anticipated, the seller’s first reaction is to give it back, initiating the case for its being much too low. A seller should consider an offer carefully and avoid a hasty reaction.

Here are a few alternatives that might offset a lower price:

•    an offer with no or very few, and easily satisfied contingencies
•    a consulting agreement or other deferred compensation
•    a quick closing
•    all cash, if that’s important
•    employment contracts with relatives or long-time employee(s)
•    business vehicle to remain with the seller
•    buyer has a long success record indicating long-term survival
•    short-term payment period if seller financed

When a professional business broker is involved, he or she can point out those areas that may offset the price, down payment or the structure of the deal. After all, the important thing is not what a seller gets, but what he or she gets to keep!

A recent survey revealed the following percentage breakdown of last year’s business sales by business types. The information was furnished by business brokerage firms nationally and compiled by Business Brokerage Press.       

Figures rounded

Service type businesses include dry cleaners, quick print, video stores, etc.  Other businesses include coin laundries, delivery, product, and vending routes, and any that don’t fit into the other categories listed.

What does this mean to you as a business owner?  It indicates that service type businesses seem to be creating the most activity from business buyers, followed by retail and the food and drink sector.  The service sector has also been the leader in businesses sold by business brokers for the previous two years. This coincides with the growth nationally in the service sector coupled with the broad range of businesses included in it.

The food and drink sector, which includes restaurants, fast-food, taverns and the like, has always been a popular one for buyers. One reason is that most people frequent these types of businesses on a regular basis and therefore are familiar with them. Plus, there has always been a certain “celebrity” status connected with this sector.

However, statistics aside, today’s buyer has more knowledge, experience and education than ever before and is willing to consider almost any type of profitable business.

The most recent editions of BizComps, the leading resource for comparable sales data (www.bizcomps.com ) has some interesting information on small business pricing based on the three major regions of the country – Eastern states, the Central states and the Western states.  They cover thousands of actual business sales over a ten year period.  Here is the breakdown:

Location                        Average Sale Price

Western states                    $299,500

Central states                    $221,951

Eastern states                    $285,941

Using the Western states as the base, since that region of the country has the highest average price business, businesses in the Central states sell for 74 percent of the average price in the Western states; and the average price in the Eastern states is 78 percent of the Western states average.

The buyer loves your business; it’s just what he or she has been looking for.  He has reviewed your financial statements and has made an offer contingent on several items.  You’ve reviewed the offer and it looks fine, so what’s next?  The contingencies in the deal mean that the buyer or his or her advisors have some concerns. In larger deals, this process might be called due diligence.  However, in the smaller business sale, the items of concern are usually spelled out as opposed to a general review of everything.  The reason for this is that larger businesses or companies have a lot more areas of concern than the typical smaller business.

Most contingencies concern the review of financial statements and/or business tax returns.  Others may involve lease issues, the seller staying on for a set period of time, or some very specific issue such as repaving the parking lot, if the landlord won’t or isn’t required to.

Unfortunately, some contingencies may be hiding other ones such as a list of fixtures and equipment included in the sale.  Sounds easy on the surface, but the seller forgot that two pieces of equipment currently not in use need repair or the walnut desk in the office belongs to Grandfather Smith and is not included.  Or, while reviewing the lease, the buyer discovers that the landlord requires that the business must close by 9:00 PM or some other restriction applies and was not disclosed. Deals have fallen apart over similar issues.

Most contingency problems can be resolved prior to the business being placed on the market.  The seller should do all of the following:

•    Check the status of all furniture, fixtures and equipment (FF&E).  Remove any that are not included in the sale or are inoperable if not in use –  or make repairs.

•    Review any contract such as the lease, any equipment leases, and contracts that will be assumed by the buyer.  Make sure there aren’t “clinkers” in them. If there are, disclose them to a potential buyer out front – and be sure your business intermediary is also aware of them.

•    Be prepared to answer questions such as:

– Are there any environmental, governmental or legal issues?
– How long will you be willing to stay and work with a new buyer – at no cost?
– Will the employees stay?
– Why was last year the worst one in years?
– Why was last year the best one in years?

The list could go on and on, but sellers need to be ready. Buyers don’t like surprises.  A business broker professional knows the process like a book and can be invaluable in preparing the business for the marketplace.

For many owners, selling their business is a new experience, and there is always the fear of the unknown. Selling a business is a not only a major economic decision, but it can also be an emotional one. After all, many business owners have spent many years, and a lot of hard work building the business. When the decision to sell is made, there will inevitably be accompanying concerns. However, when faced head-on, these concerns can usually be addressed and resolved. Here are some of the major concerns and ideas on how to deal with them.

Getting the Highest Possible Price

Every seller wants to get the highest possible price for their business – that’s a given. Here is an old, but very accurate definition:

• The Asking Price is what the seller wants.
• The Selling Price is what the seller gets.
• The Fair Market Value is the highest price the buyer is willing to pay and the lowest price the seller is willing to accept.

Today’s buyers are more educated, more sophisticated, and more demanding than ever before. They seem to be searching for a “sure thing” – yet, many are afraid to make the leap-of-faith necessary to make the final plunge. Buyers are also more numbers conscious than in prior years. Somehow they think they can buy a business and continue with business as usual.

Sellers, on the other hand, must understand that the buyer may buy with an eye to the future, but is only willing to pay for the past performance of the business. The buyers believe that the future of a business is up to them and they should reap the benefits of their efforts. The value or price, however, in their minds, is based on what the seller has done with it.

In order to obtain the highest possible price, the seller should make sure that the financial records are crystal clear. Any issues, whether, financial, operational, legal, or environmental, should be addressed and resolved prior to putting the business on the market. Hidden issues have sabotaged more sales than anything else.

This may seem a contradiction, but the seller must go to market initially with a fair price. Too many times, a seller’s first inclination is to start with a very high, and very unreasonable, price. They may feel that the business is really worth what they are asking and may be unwilling to accept the fact that the price is unreasonable. The thinking is that an interested buyer can always make an offer. Interested buyers will feel that the price is so high that a fair offer would not even be considered. A professional business broker can advise buyers on what is reasonable and what is not.