Selling a Business is a Process…
The process for some is the result of a realization that a time for change has arrived. Ideally this is the decision to trigger an Exit Plan. But quite often it’s a decision governed by some external event either accelerating an exit plan, or forcing the development for a plan. And at some level the plan or circumstance is emotional. It’s a time to infuse objectivity and to have at your disposal an experienced adviser to assist in navigating the process. We tailor an approach for each business, as no two are exactly the same. Below we have some of the steps outlined. But the beginning starts with a casual conversation. An opportunity to get to know one another, and an opportunity for each of us to determine if there is a fit, and to determine if it makes sense to begin the a plan and work together to achieve a specific outcome in conveying your business.
Determine Market Value
The first step is to determine the market value of your business … This is extremely important. Most business owners know the value of their home and their automobile but have no idea the value of their most important asset … their business. Or they rely on simple formulas or multipliers that do not take into consideration many variables like industry trends, location, financial and other critical factors. The firm of Adams & Chebalo has the expertise and the tools to determine the value of your business. Our professional intermediaries have the resources at their disposal to help arrive at a value for your business. Our experience and industry knowledge will insure that you will receive the best possible value for your business.
Adams & Chebalo will prepare a Confidential Marketing Package for your company. Your business is unique; buyers want and need to know about it. Your marketing package will detail the positive attributes of your business and explain any weaknesses in a manner that helps the buyer fully appreciate the business performance and its potential.
Critical Elements of the Marketing Package:
• Description of Business Products and Services
• Current position in the market
• Opportunity for Growth
• Detailed description of assets (i.e., equipment,
computers, machinery, etc.)
• Re-cast earnings analysis to illustrate the true
earnings of the business
• Re-cast balance sheet to clearly describe what the
buyer is buying
Confidentiality: Business owners choose to market their business confidentially. At Adams & Chebalo we require that each potential buyer sign a Non Disclosure prior to our releasing any information about your business. In addition, all prospects must submit personal or corporate financial statements before we reveal any specifics. We will only bring you screened buyers.
Marketing: Our business marketing professionals have years of experience marketing businesses confidentially. Adams & Chebalo will use a combination of; print media, trade publications, internet marketing, direct mail, and telemarketing. The advertising will describe enough about your business to understand what you do without disclosing who you are.
Non Disclosure Agreements: Potential buyers are required to sign a Non Disclosure Agreement before we disclose the identity of your business.
Buyer Screening: Buyers are required to complete our Confidential Buyer Profile and financial statement prior to receiving details about your business. This profile provides the buyer’s background, employment history, and financial situation, as represented by the buyer.
Controlling Flow of Information: Different buyers request different levels of detail at different times. We provide only enough information for the buyer to get into the position of a possible offer. Full due diligence will only be allowed after the buyer and seller have mutually agreed upon terms of the sale of the business.
Buyer – Seller Meetings: As soon as the buyer has determined he has a serious interest in your business, we will arrange a buyer-seller meeting to discuss the general operations of the business. The price of the business is never discussed face-to-face and all offers must be in writing.
– Higher Price
– Lower Interest Rate
– Faster Closing
– Continued Owner Involvement
– Formal Business Valuation Required
– Various Options and Longer Terms
– Application, Processing and Loan Closing
– Greater Independence
Asset sale vs. stock sale
Allocation of purchase price
Buyer’s financing the transaction
- Tax issues
Real property taxes
- Transition Issues – training periods
- Non-Competition Agreements Closing Schedule
- Earnest Money
Managing Due Diligence
“The Only Surprises Allowed Are The Ones We Plan”
Buyer Due Diligence
At this point in the process, the buyer has usually retained an accountant to help them evaluate the business. If the seller provided the information we requested when we began to market the business, we will have most of the information we need to start the due diligence process. During due diligence, our objective is to prove those earnings to the buyer and his advisers.
Seller Due Diligence
Seller due diligence activity will vary depending on the structure and terms of the deal. The seller should request a full financial statement and credit report on the buyer. Other due diligence information may be required depending on the terms of the financing, lease assumptions (if any), non-compete agreements, etc. Adams & Chebalo advises all sellers to prepare for due diligence as soon as you retain us to market your business. Our objective is to eliminate the possibility of surprises during due diligence.
Negotiating Closing Documents
The closing documents define the terms of the transaction.
Important elements that often require difficult negotiations are:
- Allocation of Purchase Price
- Representations and Warranties
- Promissory Notes
- Security Agreements
- Personal Guarantees
- Lease Assignments
- Assumption of Specific Liabilities
Closing The Transaction
“This Is Where The Money Changes Hands”
Typically, the closing will take place at an Escrow Company that specializes in the transfer of businesses. The Escrow Agent is responsible for making sure all documents are executed before the release of funds to the appropriate party. Closings are typically smooth and quick. A closing should not include any additional negotiations although from time-to-time a last minute issue will need to be resolved at the closing table. The transaction is now complete and the buyer and seller begin the process of executing a smooth transition to new ownership for the business.