| The process of ownership transfer |
| The process of transferring ownership of business requires owner’s firm commitment to commence and implement a complex process that could take six to fifteen months or more to complete. The purpose of this document is to outline the steps we will take in packaging and marketing the successful sale of your business. 1. Broker’s Confidentiality Agreement - We put in writing that “All information provided shall be held in strict confidence”. 2. The Opinion of Value - We utilize formulas to give you a “ball park” figure of what we think the business might sell for. The market ultimately decides the value for your business. 3. The Third Party Valuation - If you are not comfortable with the Opinion of Value, you have the option to contract for a third party valuation through RWS, a company we use in Dallas, that does thousands of valuations of businesses each year for our hundreds of BBN affiliates throughout the country, and they have their finger on the pulse of what specific businesses in particular segments are selling for in today’s marketplace. This cost from $2,500 to over $15,000. Business valuation is research performed as if a buyer were scrutinizing your company. The result of this is a report that will allow a client to deal with buyers' requests for due diligence. It also provides a pause or decision making point as to whether to go to market immediately, remove any impediments to a sale, or implement value enhancement recommendations. It starts with Market Research which is a crucial step in the process of selling a business for the highest price. RWS researchers study many things, including industry trends, competition, niches, geographic influences, life expectancy of products/services, market definition, market share, legislative factors, world influence and of course, what motivates a buyer in a particular industry. Analysis and comparison of your firm's operating results with industry standards is paramount to understanding how the business is operating in your market and why, what factors are restricting or limiting your business and what would happen if they were removed. Because most privately owned businesses take steps to minimize taxes, RWS evaluators carefully analyze your business, using a recasting procedure that is critical to determining the value of your business. Valuation is generally done by RWS specialists looking at the business from numerous points of view - the most common being: Historical Recasted Earnings, Present Value of Assets with Goodwill and, most importantly, Future Sustainable Earnings. The RWS Valuation is delivered in a clear, concise manner. You'll know what your business is worth and why. Value Enhancement Opportunities are often uncovered and, with some effort on the part of the owners, can significantly increase the value of a business in a relatively short period of time. These opportunities, if they exist in your business, will be detailed in a clear, easy-to-understand format. Exit Planning can make a big difference. Fairmate Inc. Know that it's not how much you sell your business for that counts, but how much you get to keep after taxes that's more important. Often, a little time spent on tax planning issues such as Assets vs. Shares, Real Estate included or excluded, Retiring Allowances and Management Contracts, can make a significant impact on what you take home. The Phase One Business Analysis report is the documentation of the foregoing. It is written in a clear concise manner. You will have a clear understanding of your Business' Value, its problems, challenges and opportunities. Serious buyers, SBA loan officers and other financial institutions always want a formal appraisal of the business to be purchased for difference reasons. Do you want to have control of this valuation, or would you allow the buyers to have control of this valuation? This is one of the keys to the success in marketing your business. 4. The Exclusive Representation Agreement - Assuming you are conformable with the above, we ask you to sign an exclusive representation agreement, granting us the exclusive right to market your business for a period of at least one year. The process of ownership transfer requires your firm commitment to the commencement and implementation of a complex process that could take six to fifteen months to complete, or even longer. Our Service begins AFTER representation agreement is signed by both parties. 5. Confidential offering Memorandum - We need you to fill out this document that asks a wide variety of questions about your business and your competitors in the marketplace. Your answers aid us in properly preparing the marketing narratives (the Confidential Profile and Confidential Memorandum; $2,500 to over $15,000 value), used to communicate the features and benefits of your business to qualified, prospective buyers. This ability to tell your story takes time, and save time later when it is time to close the deal. 6. We immediately contact our current qualified buyers and all of our BBN affiliates around the country to contact their qualified buyers with an expressed interest in your category of business, and we provide the Confidential Profile to those that respond positively. Please visit Link: qualified buyers for the list of buyers we are currently working with. 7. The Internet - Concurrent with the above, we place a written narrative on the top web sites that deal in business brokerage, thereby exposing your listing to the broadest possible audience of motivated buyers available. 8. The Sorting - Then we spend an enormous amount of time sorting through the responses and inquiries, qualifying buyers, who appear to be interested, as to their financial strength, and their commitment to maintain confidentiality. All qualified buyers are, in turn, provided with a complete marketing prospectus (the Confidential Memorandum) on your business, for their review. And this sorting process may take months before we identify the two or three serious candidates that we bring to your table for an initial meeting. 9. The Buyer/Seller Meet - In our experience, if the buyer and seller connect with each other during this initial meeting, then the chances of the deal being satisfactorily completed are greatly enhanced. 10. The Offer to Purchase - We work with the prospective buyer in helping him to structure a formal written offer to purchase. And we orchestrate the process of having both the buyer and the seller reach agreement on price and terms of the transaction. The buyer submits this offer along with an earnest money check (usually 10% of the asking price) which is held in escrow until closing. We help in handling the negotiation with selected buyers and completion of the transaction at the best possible structure and price (after tax).We quickly qualifies the buyer, establish economic terms and conditions, and set the process in motion. Negotiation occurs over a broad range of topics and issues, as professional negotiators we will represent your interest throughout this arduous process, during which the fine details of the formal agreements are determined. 11. The Due Diligence Process - We manage the process of due diligence, during which the buyer is given the opportunity to review all aspects of the business he is purchasing. Due Diligence requires careful control and monitoring by an experienced team, skilled in directing the proper information to the buyers. If proper documentation is done from the very beginning, then there should be no surprises or problems later on, which could postpone or prevent a successful closing. 12. The Closing - After an appropriate period of time to complete the due diligence process (usually 45 days), we set a closing date, through our closing Escrow, at which time the buyer and seller meet in escrow office, to review, have explained, and sign all legal documents relevant to the transfer of ownership of this business.. At closing, the buyer brings a cashier's check for the balance of the down payment, and the seller pays the brokers commission out of the proceeds dispersed by the escrow attorney. Closing is the point at which many transactions fail. Business Brokers Network extensive experience in this arena will monitor and facilitate a proper closing. This should be a happy formality. Please let us know if you have any questions or need further explanation. Fairmate Inc. 626-673-5344 |
How to exit your business feet first
By Joe McCaul, Naperville, Illinois
Here are ten simple rules to follow if you’d like to work until you drop.
It is important that you follow them carefully or you might inadvertently become rich and idle in
retirement.
Rule #1. Avoid Planning of Any Kind
Everyone knows how unpleasant it is to meet with financial, estate and succession planners. They ask
too many questions and make you think about your own mortality. Don’t go there! Business plans –
who needs them anyway? Don’t you know what needs to happen next? No one else needs to know.
Keep all employees guessing about your eventual exit strategy.
Rule #2. No Business Valuations by Accredited Professionals.
Your cousin sold his business a few years ago. Rely on his expertise and save yourself the expense.
The guy who does your taxes might know something. Ask him. Your attorney talks to a lot of people
too. Between all these sources, you’ll find someone who will agree with your inflated expectations.
Rule #3. Now that your business in successful, take it easy
Your business has reached a manageable size now. If you decide to grow it further, you would have to
work harder. A stable business that is easy for the owner to run must surely be worth more than a
rapidly growing one that puts demands on your time. Relax.
Rule #4. No one you know could buy you out or run your business.
If you followed Rule #1, you don’t have to worry about your employees or children taking over the
business from you. They don’t have any money and aren’t trained to replace you in any case.
Rule #5. Do not hire a business broker.
Any reputable broker would immediately want to break all the preceding rules. You can do this yourself.
Your neighbor has said for years that he’d like to buy your company. Brokers will tell you that one
buyer is no buyer. They will explain to you how they can help get you the best deal while maintaining
confidentiality. Do not believe them.
Rule #6. Wait until a serious buyer appears before assembling your team of advisors
Attorneys and accountants are generic commodities readily available on demand. Bring them up to
speed when you need them. They do not need transaction or deal making experience. Don’t let them
meet or communicate directly until closing. They’re probably just running up their billable hours.
Remember Rule #5 - no brokers!
Rule #7. Time is not of the essence
Real buyers always pretend they are in a big hurry. This is an act. They have some story like “I’m
unemployed and living off my savings.” A corporate buyer or private equity group might say they are
considering a different opportunity. Their lawyers will put in “time is of the essence” to reinforce that
deadlines are meaningful. Ignore all such arbitrary demands. Be sure to surround yourself with like-
minded advisors.
Rule #8. Some skeletons are best left in the closet.
Disclosing negative information about your business will only lower its value. If it surface before closing,
you’ll be able to dance around it.
Rule #9. Push all risk onto the buyer
Demand all payment in cash at closing. No escrows, no earn-outs, no seller notes. Resist any requests
for representations and warranties. Demand to sell stock instead of assets but reject any thought of
indemnifying the buyer for issues that arose on your watch.
Rule#10. The deal can always be sweeter
You let your guard down and signed a Letter of Intent. All is not lost! There will be four to six weeks for
you to renegotiate the deal on a daily basis. The hook is already set in the buyer’s mouth. Be creative
now. Demand payment for unreported revenue. Come up with new add-backs to improve your
apparent cash flow. Alright – just say you want more money than any of the figures will support. After
all, yours is a very special business.
Congratulations, by carefully following these simple rules no one will ever buy your business. Your role
is secure as long as you remain physically able to perform unless of course your business goes belly
up in the interim.
By Joe McCaul, Naperville, Illinois
Here are ten simple rules to follow if you’d like to work until you drop.
It is important that you follow them carefully or you might inadvertently become rich and idle in
retirement.
Rule #1. Avoid Planning of Any Kind
Everyone knows how unpleasant it is to meet with financial, estate and succession planners. They ask
too many questions and make you think about your own mortality. Don’t go there! Business plans –
who needs them anyway? Don’t you know what needs to happen next? No one else needs to know.
Keep all employees guessing about your eventual exit strategy.
Rule #2. No Business Valuations by Accredited Professionals.
Your cousin sold his business a few years ago. Rely on his expertise and save yourself the expense.
The guy who does your taxes might know something. Ask him. Your attorney talks to a lot of people
too. Between all these sources, you’ll find someone who will agree with your inflated expectations.
Rule #3. Now that your business in successful, take it easy
Your business has reached a manageable size now. If you decide to grow it further, you would have to
work harder. A stable business that is easy for the owner to run must surely be worth more than a
rapidly growing one that puts demands on your time. Relax.
Rule #4. No one you know could buy you out or run your business.
If you followed Rule #1, you don’t have to worry about your employees or children taking over the
business from you. They don’t have any money and aren’t trained to replace you in any case.
Rule #5. Do not hire a business broker.
Any reputable broker would immediately want to break all the preceding rules. You can do this yourself.
Your neighbor has said for years that he’d like to buy your company. Brokers will tell you that one
buyer is no buyer. They will explain to you how they can help get you the best deal while maintaining
confidentiality. Do not believe them.
Rule #6. Wait until a serious buyer appears before assembling your team of advisors
Attorneys and accountants are generic commodities readily available on demand. Bring them up to
speed when you need them. They do not need transaction or deal making experience. Don’t let them
meet or communicate directly until closing. They’re probably just running up their billable hours.
Remember Rule #5 - no brokers!
Rule #7. Time is not of the essence
Real buyers always pretend they are in a big hurry. This is an act. They have some story like “I’m
unemployed and living off my savings.” A corporate buyer or private equity group might say they are
considering a different opportunity. Their lawyers will put in “time is of the essence” to reinforce that
deadlines are meaningful. Ignore all such arbitrary demands. Be sure to surround yourself with like-
minded advisors.
Rule #8. Some skeletons are best left in the closet.
Disclosing negative information about your business will only lower its value. If it surface before closing,
you’ll be able to dance around it.
Rule #9. Push all risk onto the buyer
Demand all payment in cash at closing. No escrows, no earn-outs, no seller notes. Resist any requests
for representations and warranties. Demand to sell stock instead of assets but reject any thought of
indemnifying the buyer for issues that arose on your watch.
Rule#10. The deal can always be sweeter
You let your guard down and signed a Letter of Intent. All is not lost! There will be four to six weeks for
you to renegotiate the deal on a daily basis. The hook is already set in the buyer’s mouth. Be creative
now. Demand payment for unreported revenue. Come up with new add-backs to improve your
apparent cash flow. Alright – just say you want more money than any of the figures will support. After
all, yours is a very special business.
Congratulations, by carefully following these simple rules no one will ever buy your business. Your role
is secure as long as you remain physically able to perform unless of course your business goes belly
up in the interim.
