Do you have questions about buying or selling a business in Charlotte or the Southeastern United States?
We have answers! Browse our FAQs about selling or buying a business to prepare yourself for the business transaction process.
The best time to sell is when a business is doing well. It is best not to wait until after a business has peaked; the selling price can suffer. However, almost any business can be sold, even if it is not doing well, if the sale is handled professionally and priced correctly.
A company’s value depends on many factors such as: cash flow, financing terms, value of assets, type of business, financial history, condition of equipment and premises, lease arrangement on premises/equipment, competition, location, and future potential, among other factors. By analyzing your business and comparable sales in your industry, your VR Business Intermediary can advise you on the proper pricing strategy for your business. For larger businesses we recommend a third party valuation. Buyers are much more likely to pay top dollar for a business when documented evidence supports the asking price. Most financial institutions insist on a business valuation before they will consider financing.
These terms tend to be used interchangeably but they are usually defined as profit before income tax plus depreciation, interest, owner’s compensation and other owner benefits. It represents the amount of money the owner has available to pay himself, to invest in additional equipment, to make the note payments on the business and pay taxes.
Buyers always confirm the financial standing of a business during due diligence. Financial statements and tax returns need to be up-to-date and accurate before a buyer asks to see them. A buyer is not insulting a seller when he asks you to prove your numbers. He is only being a prudent businessperson. In addition to books and records, the appearance of your business is paramount. Buyers like well maintained equipment, clean facilities and current sellable inventory. Make it easy on the buyer to make a positive decision by making certain your business shows like a winner.
Just as you would not want your personal financial documents made available to the public, business owners want only serious buyers to have access to such private information. Your Business Intermediary will provide you with summary information including gross sales, general expenses, lease information and cash flow. He/she will assist you in drafting an offer based on that information and protect you by making the offer contingent on your satisfaction with the seller’s business information upon your full investigation. An Offer to Purchase Agreement simply says, “If everything I assume about this business proves true, this is what I am willing to do.” You, the purchaser, then have the right to proceed, withdraw your offer or make a new offer based on your investigation. The seller, once he/she has accepted your offer, must stand by those terms unless you and you alone choose to alter them.
Buyers need to have some funds to offer as a down payment in order to acquire a business. We work with buyers in a variety of ways to help them tap into all available resources to finance your new business. Below are some examples:
- Very Common: cash equivalents (checking and savings accounts; money market funds), stocks and bonds, Certificates of Deposit, gifts/ loans from friends and family, second mortgages and other real estate loans, seller financing, credit card financing.
- Moderately Common: SBA financing/ bank loans/ bank lines of credit, retirement accounts (IRAs, 401Ks, SEPS, pensions, etc.), borrowing against a different existing business (lines of credit, accounts receivable factoring, inventory financing, equipment financing), asset sales (real estate, autos, etc.).
- Rare: customer and supplier financing, venture capital, small business investment companies, private placement, convertible debt financing.
You can’t ever be completely certain. But consider this: a Buyer isn’t likely to simply walk away from his deposit. In addition, we recommend that Sellers conduct their own due diligence on Buyers during the due diligence phase of a contract. This might include credit, IRS and reference checks. In addition, it’s normal to request a personal guarantee from the Buyer as part of the security agreement in the Note.
Most owners find that the frustration, expense and time involved do not yield cost savings and many end up working with unqualified buyers. In fact, because they do not have access to a large number of qualified buyers, many owners end up selling their business for much less than they could have received by working with a well-established Intermediary. Plus, owners find it difficult to work directly with buyers while maintaining confidentiality. Selling a business is a specialized trade. It is prudent to seek professional assistance when it comes to selling an asset as valuable as your business.
Sellers benefit from the expertise provided by a professional business broker in various ways. One of the more significant benefits is the ability of the seller to spend their time managing their business during the selling process, thereby maintaining or increasing their cash flow and ultimately maximizing their sales price. Additionally, professional business brokers help sellers:
- Analyze the business, the marketplace and recommend a selling price.
- Create maximum exposure among buyers through broker networks, advertising and buyer contacts. Screen all buyers to avoid wasting time with unqualified buyers.
- Maintain confidentiality about the sale in order not to alarm customers, employees and suppliers, or giving a market advantage to a competitor.
- Manage the selling process from beginning to end including the coordination of all forms and documents and work alongside professional advisors such as attorneys and accountants.
Professionalism, expertise and a long track record of success that has led to the development of a proven system for selling businesses. Since 1979, VR has sold over 50,000 businesses through our network of national and international offices. VR is the only international network of full-time business broker professionals that focus exclusively on the sale of small to mid-size companies. One clear benefit to sellers is the expansive exposure to prospective buyers through the VR network both nationally and internationally. Additionally, VR is also a member of some of the largest business broker networks to help provide maximum exposure.
Business brokerage is a highly specialized field comprised of well-trained and experienced professionals. There are numerous differences in selling real estate property and selling an on-going business. A professional business broker must understand how to perform cash flow analysis to best benefit his/her client, maintain complete confidentiality, advertise for results and advise the seller in such vital areas as pricing, terms, offer structure, negotiations, legal issues, and business enhancement prior to offering a business for sale. Only an experienced business broker can perform all these functions to the best advantage of a seller. The standard commission charged is minimal when one considers all the functions necessary to facilitate a smooth and satisfactory transfer of ownership. It is also important to keep in mind that a business usually takes longer to sell versus a home. A recent national survey showed that, on average, it takes 182 days to sell a business.
The first contact VR makes with the market of buyers for your business is via a blind (anonymous) profile of your company. Your location is described in general terms and so are the details of your company. Key financials are presented as well as a description of your products and services, along with its opportunities for growth. Your company is not identified in the profile. By hiring VR, who is responsible for preparing the documentation and handling the marketing process, you can ensure that the process remains confidential. This also allows you the freedom to continue to focus on running your business throughout the sale process – a key aspect of maximizing your closing price. VR’s proven process over 4 decades maintains your confidentiality by only releasing information about your business to qualified buyers who work under our confidentiality agreement.
Yes. For most small businesses VR does not charge upfront fees. We will do a free broker opinion of value that will give you a value range that you could expect in the marketplace. We do this before we contract to list your business for sale to make sure your expectations are realistic.
National statistics indicate the average time on the market for around 82% of businesses is 4 to 12 months. Fewer than 10% of businesses sell more quickly, and about 8% are on the market for more than 12 months. Price and the structure of the sale have the biggest impact on timing.
One year minimum. National statistics indicate that on an average, businesses are sold within four to 12 months.
There are many reasons, but here are a few dominant ones.
- Sellers are not willing to finance a portion of the sale price (seller financing)
- Revenue declining
- Poor/Inaccurate financials that don’t withstand the due diligence process
- Sellers/Buyers get cold feet during the process
- Landlord issues – After a buyer and seller have “negotiated” a deal is that the landlord cannot come to terms with the seller and/or buyer
- Sellers, too often, listen to well-meaning outside relatives, friends or advisors who really don’t have sufficient knowledge of the selling process. Sellers who don’t use a professional business broker/intermediary are at a disadvantage. These outside professionals know the marketplace and greatly assist in finding the right buyer. They are a “value-added” service and will more than justify their fee. The seller who represents himself or herself will almost never get the price that a business broker professional will obtain.
Either option is possible. You may receive offers for just the business with rental income to you, as well as offers to purchase the business along with the real estate. You can choose whichever option you prefer. Depending on the type of buyer your business would most likely bring, you may want to consider the purchase of the property as an option for the buyer in order to widen the pool of prospects. VR employs business brokers that are licensed real estate brokers and can facilitate the sale of real estate as well.
Based on the size and type of business, the current owner typically stays on for a period of two to eight weeks to train and insure a smooth transition. Larger acquisitions require a longer period of time. It depends on how the deal is structured.
Usually an attorney’s office involved in the transaction, but each deal is different.
You should not prematurely tell your employees. There will be a right time, but if you are in the beginning stages of considering selling your business, the actual sale could be a year away. Your key employees could begin looking for work, most likely at your competitors. The value of your business could be affected by losing key employees. In addition, key customers could find out the status and begin looking for a new vendor if they are uncertain about the future.
Financial data we review includes the past three to five years of:
- income statements
- balance sheets
- tax returns
- equipment list and appraisals
- property/building appraisals
We work with companies with revenues from $250k – $20 million.
VR provides all the services required to sell a business, from initial valuation through closing. If you sell the company while under contract with us, you are still obligated to pay the commission in the engagement contract. The service we provide includes sourcing buyers and negotiating the deal, so if you have a buyer in mind, it is extremely important to refer them to us. We will provide professional representation with all buyers so you can concentrate on running your business.
That is great news. We are happy to work with sellers who have identified a specific buyer for their business. We will work aggressively on you behalf to make sure the transaction gets completed. Feel free to contact us to discuss this unique situation in greater detail.