The time needed for sale depends on a great many factors including the price of your business, the type of business, and your willingness to finance the buyer. In general, it takes six months to a year or longer to find a buyer for a business and close the sale. The price and the terms you are offering are important factors. The more reasonably priced and the better the terms offered, the faster the sale. Your Sunbelt broker can discuss with you how your business fits into these general guidelines.
We first market to our large database of qualified buyers. We advertise on the Internet, on the Sunbelt site and on several other business listing sites (BizBuySell, CABB, SunbeltNetwork, BusinessBroker, BizQuest, BizBen are a few examples) giving your business exposure to thousands of Internet users. Since Sunbelt has over 230 offices, your business will have exposure in all areas of the country as well as the 11 countries we have offices. Many buyers will relocate for the right business.
For specific businesses, we do target marketing to companies approved by the Seller. This is when we go after strategic buyers or Private Equity Groups (PEGS) who want to acquire companies within your industry.
The escrow company will prepare a promissory note, a security agreement and will file a UCC-1 financing statement with the appropriate local and state agencies. It is much like financing a car—your lien will be recorded in the public records, and the assets listed on the UCC-1 cannot be legally sold or refinanced without your permission. Should the buyer sell the assets without your permission, it would be a felony offense.
Buyers do not typically pledge additional collateral for your loan. When a buyer buys your business, he/she does so based on the business being able to generate sufficient cash flow to pay your loan and provide him/her with cash flow to meet their needs. When you ask for additional collateral, you are sending a negative message to the buyer: the buyer has paid too much for your business and the business will not generate enough cash flow to pay your loan and provide adequate cash flow to the buyer.
An astute buyer is going to structure the initial offer to insure that they get the best possible price and terms from you. Therefore, you should expect to receive a “low” initial offer. Don’t be offended – this is just an initial offer to “test the waters”. If you are asking $400,000 for your business, a prudent buyer may offer $330,000 as the initial offer. The buyer does not expect you to take the initial offer, nor should you expect the buyer to accept your initial counter offer.
Since the market is strong now and businesses are showing 3 years of growth, we are finding many multiple offers. When this occurs the offers are typically higher because the buyers are competing to get your company and will tend not to come in as low since they know there are other offers. All offers that you receive will have some contingencies.
Generally, these contingencies concern review of the financial information, obtaining a satisfactory lease and agreement on a training and transition period. Another contingency is to obtain funding. Other contingencies specific to your business may be included. Contingencies are normal and provide the buyer with the ability to “check out” the business before closing.
Generally, you will be expected to provide two weeks to two months training in the business with an equal time of telephone consultation. Remember, you still have an investment in the business, so properly training the buyer is in your best interest.
Yes. Generally, the non-compete agreement covers the area from which your current customers are generated and the time period usually equals the term of the financing you are providing to the buyer. For example, if your customers come from a three mile radius of your business and you are providing the buyer with a five year loan, you will be asked to sign a non-compete for a five year period covering a three mile radius from your business.
Although it sounds cruel, our considerable experience has proven that it is best to tell your employees about the sale after the sale is complete. Of course, if there is an employee whose expertise will be needed after the sale, you should introduce the buyer to this employee shortly before closing. Your Sunbelt intermediary can assist you in determining the timing for notifying employees.
No but we do screen the buyers. We ask for a personal financial statement from the buyer, but we do not verify the information submitted. We do not run credit reports on buyers. It is the Seller’s responsibility to do whatever you feel is appropriate regarding qualifying the buyer. Generally, if the buyer has sufficient funds for the down payment and for working capital, that is adequate qualification. In our Asset Purchase Agreement it states under Seller’s Due Diligence that the Seller will require a credit report.
The kind of business we find for you will be driven by the acquisition criteria we develop together. However, the types of businesses we have helped people with cover a widely diverse spectrum and include technical placement, software and presentation packaging, digital video production, glass products, promotional products, voicemail and communications products, clean room products, semiconductor equipment, computer training, technical publishing, market research, commercial printing, mailing and fulfillment, point of purchase display manufacturing, strategic retail, commercial winch and hoist manufacturing, construction product distribution, home improvement, and construction related companies.
The reasons are numerous but include the owner’s concern about confidentiality, a lack of knowledge about how to sell, inertia, and the fact that there are few intermediaries who serve the mid-sized manufacturing distribution markets.
Although you can essentially “buy a job” in a small retail operation for less than $100,000, most of our clients are interested in acquiring a company with growth potential that will enable them to build equity and net worth. A company like that costs more. Generally, you should expect that the minimum price for a company with some momentum, critical mass and growth potential will be at least $300,000. Most of our transactions are from $200,000 to $20,000,000 range.
You should plan on having to make a down payment of at least 30 to 50% of the purchase price. With bank or SBA guaranteed financing, you may be able to reduce that to 15%. In addition to your down payment, you will need working capital and growth capital, either in cash or in the form of available credit lines. Roughly, you’ll need a minimum of $100,000 in down payment and working capital to purchase and fund a small manufacturing, distribution or services company.
There are three main forms of acquisition financing:
Seller Financing – This is the most common way small business purchases get financed. Seller financing commonly requires a 30 to 50% down payment with a Seller note for the balance of the price amortized over 5 years at 10%, but the variations are endless.
SBA Financing – U.S. Small Business Administration guaranteed financing is increasingly common but requires a fair degree of paper work and patience. SBA guaranteed financing is actually a loan from a conventional lender, guaranteed by the SBA, which makes the lender more willing to extend acquisition financing. An SBA business acquisition loan usually requires 15 to 20% down, and is amortized over 10 years at up to 2.75 points over prime rate. SBA loans are usually only purchase money loans, not working capital loans.
Conventional Financing – Local business banks are sometimes willing to extend purchase money and working capital loans, but usually the buyer and the business have to be very strong, or solid collateral outside the business has to be available.
There are four basic classes of collateral. How much is required varies from deal to deal.
Guarantees – If you form a new corporation to acquire the business, you will probably have to personally guarantee the corporation will pay off any loans made to it. Your performance can also be guaranteed by someone else.
Assets of the Business – The lender will usually expect to lien the assets used in the business.
Real Estate – If the assets of the business are insufficient to fully secure the loan, additional real property collateral may be required.
Other Assets – Ducks, pigs, vehicles, fine art work, jewels, gold bullion…there are lots of possibilities.
The business press would have us believe that buying a business and owning a small company is fraught with peril. Although there is risk in business ownership, the risk need not be excessive and certainly can be managed. Risk management starts with working from a good set of acquisition criteria. If you set up a good team of competent advisors, investigate the company carefully, prepare detailed cash flow and financial projections, and design a transaction insuring the post-sale support of the seller, the risk factors should be dramatically reduced. Another common misperception promoted by the press has been that entrepreneurs are risk takers. That is rarely the case. Although what they do may look risky, upon future investigation you’ll find great attention has been paid to risk management…which is why there are so many good small companies in the world. Look around. There are a lot more small companies than big ones, and often the owners make a lot more money than the top management of the big companies.
After observing many successful purchases, in fact, knock on wood, none of our transactions have been failures. We have seen that the skills and knowledge of senior corporate managers are very applicable to operating and growing a small company. Often, it’s like turbo-charging the business. The most consistent challenge we hear from our clients who have bought a company is not whether they are going to survive, but rather “Wow! How do I fund this growth?”
Assuming the company you wish to buy is organized as a corporation, you have a choice of buying the stock of the company from the company’s shareholders, or buying all or some of the assets of the company from the corporation. The assets of the company are both tangible and intangible, and they include such things as cash and accounts receivable, inventory, equipment, intellectual property, contractual rights, and goodwill. Although you need legal and tax advice on this issue, and there are many other things to consider, here is a brief and very general comparison of the two alternatives. Each deal will be different, resulting in differing weights to each factor and possibly differing decisions as to whether you want to buy stocks or assets. There are also a variety of creative ways to structure a transaction to “have your cake and eat it too”, at least to some extent. In general, the shareholders of a C-corporation will have a strong tax incentive to sell stock to avoid a double tax on the sale of the corporate assets; first at the corporate level and then at the shareholder level upon distribution of the proceeds of the sale.
We need you to complete a confidentiality agreement, a buyer profile, a financial statement, and an agency disclosure. Click on the links to these documents to download for individual or corporate. These forms are necessary to ensure confidentiality. The seller doesn’t want their employees, vendors, and customers to know they are selling.