How To Select The Right Business Broker

You decided to sell your business and to hire a business broker to professionally assist you in this uneasy task. How to select the right business broker? There are so many around: individual brokers, small offices, national franchises – go figure…

A simple truth is your success depends on skills and dedication of a particular business broker who is your listing agent. It doesn’t really matter how big is the office and how many people are standing behind the agent. You have to establish rapport, and feel comfortable working with that particular person. It can be done via telephone or in-person interview. Telephone interview will save you a lot of time, so I suggest to start with it.
One very important piece of advice – don’t hire real estate agent who occasionally sells businesses. The very first question to ask – is the broker sells businesses full time? Hire only professional business broker who sells businesses full time.

Another important piece of advice – don’t make amount of commissions to be a deciding factor in hiring an agent. Common saying “you got what you paid for” works here exactly same way as everywhere else. Business brokers generally charge between 8 and 12 percent commission for businesses priced under one million, and you definitely don’t want to get the cheapest one. By the way, if an agent is asking 6% commission, most likely she is a real estate agent – red flag! Another red flag is when agent is asking for any money upfront – no, no, and no!

Ask candidate to describe step-by-step activities that he/she will be performing for you. Make sure that you understand everything, ask questions.

At Global Business Group we start with helping you to determine the purchase price. Agents shouldn’t ask you for the purchase price, they should help you to determine one based on multitude of factors related to the business. However agent may ask you if you have a particular price in mind, just to see how close or far your expectations are from calculated fair market value. This business valuation is generally done free of charge if you’re signing a listing agreement. However, expect to pay a fee for business valuation services in case the agreement hasn’t been signed.

Ask a broker where your business will be advertized. It should be advertized with at least 3-5 major business listing services. Make sure to confirm that your business will be advertized very discretely and that every potential buyer will be asked to sign confidentiality agreement prior to getting any information about your business.

Ask business broker if she will be cooperating with other brokers. Coop is obviously beneficial to you because it increases chances of selling.

And finally, be as opened with your agent as possible. It just doesn’t make sense to lie or hide anything from him or her. You are on the same side. I always tell my clients who come to Global Business Group to be as honest and opened about their business affairs as possible. If agent knows the truth he/she can package and present it to buyers in such way that is acceptable to them.

So long,

Jacob Berenfeld

How To Prepare Your Business For Sale

Do you know that only 10-20% of small businesses on the market are sold. The main reason for such poor results is that businesses come to the market unprepared. Objectives for running a business and selling one are quite different, sometimes opposite. Thus if you decided to sell, it’s time to make some changes and prepare it for sale.

The best way to prepare your business for sale is to start it early, preferrably 1-3 years in advance. At that time it’s good to find a good business broker, see my blog “How To Select The Right Business Broker”, and consult with them how to increase your business value within remaining preparation period.

California business brokers at Global Business Group most likely will advise you to bring your records in order: financial, legal, administrative. It’s quite common for small businesses to maintain very limited documentation, not always computerized. And even if it is computerized, it maybe hard to understand because it doesn’t follow common rules. Just remember, your records will be reviewed by prospective buyers and it should make sense. Work with your accountant, attorney, etc. If you don’t have one, start searching…

It’s not a secret that small business owners try to minimize taxes by boosting their expenses, mixing discretionary expenses with business-related. Although it gives them financial advantages and minimizes tax liability while running a business, it becomes disadvantage when you decide to sell. During preparation period try to maximize your bottom line, showing as much net income as possible. Trust me, it’s worth it. Money that you may loose in taxes will be well compensated by higher purchase price. Remember, business purchase price is a direct function of its net income.

Let me make it clear. Don’t waste anybody’s time trying to claim income that’s impossible to prove. Don’t make any assumptions. Experienced business broker can advise you what income can be proven and how.

Experienced business broker can also advise you about another aspect that elevates value of a business - ease of learning and transfering operation to a new owner. You want to avoid situation where “you are the business”. In this case, if you’re leaving the business, there’s nothing left; it’s very hard to sell such business. So what you have to do is to put some infrastructure in place. If you’re currently managing business on your own, hire a manager or promote one of employees, and train him or her to handle all day-to-day business operations. In a long run it will significantly increase value of your business and purchase price accordingly.

 Moving to the next step, lets check a status of all agreements that should be transfered to the buyer. Facility lease, equipment leases, service agreements, agreements with vendors and customers, etc… Create a list and mark all agreements that have your personal guaranties. Those guaranties should be released upon sale.

Don’t leave any room for surprises. You don’t want to get all the way to the end of sale transaction just to find out that your lease is non-transferable. If you’re in position to extend existing lease or sign a new one some time prior to sale, incorporate transferability clause and try to insert as many lease options as possible.

Put together a list of assets included in sale and make it as detailed as possible. Remember to include both tangible and intangible assets. Furniture, fixtures and equipment, machinery, office furniture and equipment, software, trademarks, copyrights, patents… try to include everything.

Consult with your accountant how handle accounts receivables and payables. Is it better to include them in sale and let the buyer collect receivables and pay payables, of you’d like to do it yourself. Your purchase price shall be adjusted accordingly. Experienced business broker can advise you regarding the price adjustment.

If your business requires a specialty license from any state or federal agency, make sure get their requirement for transferring a license and requirements to a new licensee. Present these requirements to a potential buyer to make sure that they’re qualified.

There are many other aspects of your business that need to be looked at prior to sale and California business brokers from Global Business Group can assist you to putting them in order.

So long,

Jacob Berenfeld

Business Broker – 9 Reasons To Hire One

So, you’re considering selling your business. If you haven’t done it before, most likely, you’re not aware of all options and possibilities of selling. Let me help you to organize your thoughts and make the right choice.

First, you have to decide whether you’re going to do it on your own or hire a broker. You have to be aware that the process of selling a business takes a lot of time and knowledge. Simply placing ad on Craigslist won’t do you any good. If you, like most business owners, have pretty hectic schedule, it will be very hard to combine running a business with servicing buyers. Every buyer assumes that she is the only one and requires your undivided attention. With every buyer you have to do the following.

• assure confidentiality
• pre-qualify financially and professionally
• provide your business’ profile and financial statements. Additional information may be requested
• follow-up, follow-up, follow-up…
• schedule business tour
• negotiate terms of the purchase agreement
• prepare documentation and submit to escrow
• maintain a log of activities and current status for every buyer

In the current buyer’s market you have to be very prompt with your communication otherwise buyers lose interest, turn around and start looking for other opportunities. When they turned away, it’s practically impossible to win them back.

If it seems like too much work to combine with running your business, you have to seriously consider hiring a business broker. Qualified business broker will take over all the above activities and considerably minimize your interaction with buyers, as well as helping you with their expertise. Obviously, you have to pay commissions for broker’s services, around 10-12% for businesses priced under $1 million, with declining percentage as price goes up.

BEWARE OF HIRING A REAL ESTATE AGENT WHO OCCASIONALLY SELLS BUSINESSES. THEY DON’T KNOW SPECIFICS OF SELLING BUSINESSES AND WON’T BE MUCH HELP TO YOU. ASK AGENTS IF SELLING BUSINESSES IS THEIR FULL TIME JOB.

Now, lets review services offered by business brokers based on example of Global Business Group, leading California business brokerage firm.

1. We start with business valuation (appraisal) and analysis. It is very important to correctly determine the purchase price. On one hand, you don’t want to overprice the business because it won’t sell. Do not try to “test waters”, it never works. Only correctly-priced business will sell. On the other hand, you don’t want leaving any money on the table either. Global Business Group offers business valuation services free of charge to the clients who decided to list with the firm.
2. Our statistics reveals that it pays off to spend more time on preparing business for sale.  It increases chances of selling and conditions of sale are much more favorable to the business owner. Our business brokers work very closely with business sellers gathering necessary information, preparing Business Profile and re-casting financial statements, thus presenting your business in the most attractive way.
3. Means of advertising vary greatly depending on business type, size and geographical coverage. Majority of businesses are advertised with internet business listing services, like bizbuysell.com and businessesforsale.com. However, sometimes it may require to advertise with trade magazines or contact potential buyers directly. Marketing team of Global Business Group creates descriptive advertisement and determines the best advertising strategy for each client individually. It’s worth mentioning that advertising with one business listing service can easily run about $40-70 per month. Global Business Group publishes ads with 8-10 business listing services at no additional cost to our clients.
4. Having intermediary involved is very important for preserving confidentiality of the transaction. You don’t want business buyers starting questioning your employees, vendors or customers for information about your business operation. It may start a rumor mill, cause vendors to revoke credit terms, employees starting looking for new employment, etc. Global Business Group never reveals our client’s business name or location until proper confidentiality agreement is signed by the buyer.
5. It’s not a secret that around 50% of buyers inquiring about a business for sale are not qualified to buy it, one way or the other. Multiply it times 25-30+ buyers and you can see how much time can be wasted. It is very important to pre-qualify every buyer early and eliminate tire-kickers.
6. One would assume that once inquiring about your business for sale buyer will continue their communication until he or she makes final decision. One week later, still not hearing anything back from a buyer, you start wondering what’s going on: if she is still interested, did she get the information that you sent her via email, etc. You would probably call and ask, however, you may be afraid that your call may be considered as a sign of despair, and you want to show that buyer should be calling you, not the other way around. Besides, if you’re working concurrently with several buyers you have to keep a very clean record of each communication, current status and follow-up activities. Yes, follow-up is very important, and organized record keeping is very important too. Our business brokers use proprietary database for record keeping and scheduling follow-up activities. As a neutral third party we can communicate with both sides without weakening your position.
7. It’s not a secret that all business owners are trying to minimize their tax liability. Sometimes small business owners charge their personal or family expenses to the business too. It may work to their benefit while they run the business, however works against them when they decide to sell. When selling, you’d like to maximize your income, thus increasing the purchase price. We do necessary adjustments to your financial statements, reflecting correct unbiased performance of your business. Our business intermediaries will professionally prepare Confidential Business Profile, recast financial statements and compile all necessary information about your business that may be requested by buyers.
8. Properly orchestrated negotiation can make a difference between deal and no deal. There is a lot of electricity in the air when people discuss money. Simple misunderstanding may cause an argument and terminate a deal. Having business intermediary as neutral third party mediating your negotiations will bring calm, business-like atmosphere and assure successful outcome.
9. After purchase agreement is executed by both parties most business sale transactions are finalized through escrow. Majority of escrow companies do not perform “bulk sale transfer” operations, under which business sale is listed. There are only a few selected ones with no more than one escrow officer qualified to perform this duty. Having knowledgeable and responsive escrow officer is very important. She can not only save you money, but also help with drafting necessary documentation and keep informed about escrow progress. Experienced business broker can suggest you well-tested escrow company.

Finding knowledgeable and dedicated business broker isn’t easy. Don’t rely entirely on reputation of the firm because, after all, you’re working with a particular person and your success depends on her and her alone. Ask the agent how many deals he or she closed within last year and ask for references. Ask if you have the right to terminate the agreement if you’re not satisfied with their service. Walk away if you don’t have such right. Ask to report to you every … “Hooold on, we’re getting to the next topic.” How To Select The Right Business Broker will be subject of my next article.

So long,

Jacob Berenfeld