Ok, so you are lucky enough to have sold your business. Now what? One of the things sellers normally forget is the closing process. In one of my previous articles I mentioned that among the many things Business Brokers do for sellers and Buyers is to manage the closing process once a Purchase Agreement (sale) has been made. As brokers, we normally manage three (3) key areas after a Purchase Agreement has been signed: The Due Diligence, Lease Assignment and Closing Process.

During Due Diligence, we help both buyers and sellers (yes, sellers, too) verify the reliability of financial records. Lease Agreements, corporate status, etc. During this period—normally 10-15 days--we deal with accountants and lawyers asking for information pertinent to the business and making sure the information flow occurs as expected. After all requirements have been met, we ask the buyer to sign a “Due Diligence Release Form” indicating his satisfaction with the review. If the buyer is not satisfied within the timeframe allotted, all bets are off.

The Lease Assignment Process is perhaps the one where most deals are broken. Most Purchase Agreements include a Lease Contingency clause-- one where if the buyer cannot obtain a lease the deal is off. Unfortunately, most Landlords are unwilling to go from one lessee to another without a tremendous amount of scrutiny. So, we, as brokers, must convince them of the financial capability of the buyer to undertake the lease assignment “for the landlord’s benefit,” or, a win-win for both the buyer and landlord. This, my friends, is “easier said than done.” As I mentioned before, the landlord has no motivation to provide either an assignment or a new lease—he already has someone (the seller) committed to pay the rent.

Last, but not least, we manage the “Closing Process.” The Purchase Agreement becomes the basis for the preparation of about twelve (12) or more documents—depending on the complexity of the transaction. Brokers normally take both the seller and buyer through this process by going over each one of these documents. Failure to follow this process may mean a deal broken at the closing table, where either the buyer or seller would indicate ignorance. Some of these documents are shown below:

a. The Affidavit. The seller indicates ownership of the business being sold; all information provided to the buyer is correct, no outstanding liabilities etc.

 b. Allocation Agreement. An agreement as to how the sale of the business will be allocated among its assets, where the balance normally is goodwill.

 c. Bill of Sale. The seller indicates his/her agreement to sell their business and the components of it; such as websites, Business name, etc

d. Buyer Written Action. The buyer’s corporation consents to the purchase of the business.

 e. Closing Agreement. Buyer and Seller indicate that conditions within the contract have been satisfied.

 f. Indemnification. Buyer and Seller hold each other harmless from losses.

g. Non-Compete. Seller agrees not to compete within the pre-established distance and time.

h. Pledge of Lease. Buyer agrees to guarantee lease payments or forgo business.

 i. Security Agreements. Buyer pledges the business as security for non-performance on Promissory Note.

j. Seller Written Action. The Seller’s corporation consents to the selling of the business.

 k. Promissory Note. The conditions to pay back the seller financing.

l. Closing Statements for both Seller and Buyer. Distribution and Receipt of funds.

The proper management of the areas listed above would insure the successful completion of a sale. Make sure that you have a competent business broker who can effectively negotiate and navigate your sale through these very “dangerous waters.”

Should you want to know more about buying or selling a business in Central Florida, visit my website at www.bizbuyorsellflorida.com, email me at fsimo@tworld.com or call me at 407-361-8886.

What is it about most of us who decide that “cheap” is better? We do it when buying clothes, shoes, furniture, car, etc, only to find out, in most instances, that our decision was not a good one. Why?? Because in the very short term, clothes look like hell and soon deteriorate, shoes fall apart and last only a few months, and our furniture rips apart easily, forcing us to go buy the same things within months-- doubling our expense!!  We do the same when buying a house.  We forgo the best location--in front of a lake or preserve-- to save a few thousands only to lose thousands more at the time of sale.  Remember, location, location??

During one of my listing appointments, I met a seller who wanted to sell his business in order to improve his quality of  life—he wanted to spend more time with his family. According to him, he spent over sixty (60) percent of his time doing things that had nothing to do with the actual operations of the business—the back office stuff.  He complained that the forty (40) percent he spent focusing on his business, although enjoyable, was not enough to provide the kind of bottom line profitability he needed to provide for his current life style. Therefore, his solution was to sell the business.

More often than not, as I go on a listing appointment, the seller looks at me with concerned eyes and makes the following/or similar statement:  “My business does not generate enough profit for me to sell it; I really cannot afford to sell for the price that I may get.”   This may be a wrong assumption solely based on the profitability of the business.

 First of all, the value of your assets, such furniture, fixtures and equipment (ff&e) may be enough to warrant a reasonable price and secondly, and most importantly, profit does not equal benefit.    Although your Net Income may be in the red, the (Owners) benefit generated by your business may be in the thousands of dollars.   I recently dealt with a seller whose profit and loss statement showed $50K worth of net losses, only to discover after analyzing the result of operations, that the real cash flow generated by the business was better than $150K.  There were the usual add backs, but one very unusual--$170K write off of bad debts—a significant amount of which was nonrecurring.  So what truly represents Owners Benefit?   Well, we take your net income and add back to it:

1.                  Owners Salaries.  Although a P&L expense, this is definitely a benefit to the buyer.

2.                  Personal Car Expenses.  Normally, owners write off all expenses associated with their car—including, but not limited to car insurance.

3.                  Other Benefits.  Health Insurance, Life Insurance charged to the business becomes a benefit to the buyer.

4.                  Depreciation and Amortization of costs.  These expenses are not cash expenses nor will they belong to the new owner.  As such, we add them back as a benefit.

5.                  Interest Expense.  The interest is normally associated with a seller’s loan.  Therefore, not an expense to the new owner.

6.                  Major Legal Fees.  Normally apply only to the seller are commonly non-recurring expenses.

 So, if you are thinking about selling your business, you may have a lot more value than you think.  A simple analysis may determine that your contribution to the bottom line may be greater than you expect.  Remember, the owners benefit times a multiplier (normally 2-3 times) may become a reasonable sales price/value for your business.

Should you want to know more about buying or selling a business in Central Florida, please contact Fernando Simo at 407-361-8886, email me at fsimo@tworld.com or please visit my webpage at www.bizbuyorsellflorida.com .

During the week, I had a discussion with a very talented individual whose job is to help businesses “get well” financially through leadership development.  He asked for my opinion regarding valuation and exit strategies.   The essence of his question dealt with a topic in the mind of many-a-business:  when can I sell my business in order to get the most value? 

Now, I know that many of my colleagues may have their own answer to this question.  However, I gave him a very simple answer:  Treat your business as if you were either buying or selling stock.   Now, let’s not count those businesses which must sell for personal reasons, such as health problems; relocation requirements; moral or ethical issues; conflicts with partners or the BIG ONE; cash flow.   Those businesses, unfortunately, must sell at whatever price the market demands based on current business conditions and profitability.  No, I am talking about those businesses which began with an expectation/plan.

People buy stock because they expect a certain level of either growth (accumulation of equity) or earnings (Dividends).  Likewise, entrepreneurs enter into business opportunities after the development of financial forecast projecting the sales and earnings growth of the entity, given a certain Internal Rate of Return (IRR) —and in some cases, after a clear definition of an exit strategy.  So, they “buy” with an understanding of the risks/rewards associated with the opportunity.  So when should they sell?? 

Just like stock, these businesses should sell when the results of operations are significantly less than or more than expectations.  Depending on many factors, significant growth normally means a new concept/industry and, guess what?? major corporations normally look favorably to buying into and diversifying into growth markets. Sell it!!  If the results are significantly less than expected, sell it!!  Isn’t that what you would do if the stock falls by a specified percent?  If you do not, chances are that you will lose more in the long run.

So, treat the sale of your business as you would treat the sale of stock.  Yes, I know too simplistic, but true.

Should you want to know more about buying or selling a business, please contact Fernando Simo at 407-361-8886, email me at fsimo@tworld.com or please visit my webpage at www.bizbuyorsellflorida.com .

Ok, so what in the heck do Business Brokers do to EARN a living??  I really think that very few people truly understand how they add value to the process of selling or buying a business.   Although brokers help sellers value their business; structure it for sale; market it (confidentially) for sale; coach buyers; show their business; qualify buyers for financial capability to buy the business and, conduct most of the negotiations.  Our job really begins when the buyer makes an offer.

When a buyer makes an offer, we prepare a Purchase Agreement for his review and signature.  The agreement is normally a seven (7) pages long and includes more than twenty-five (25) different clauses dealing with the transaction—all of which must be explained and accepted to not only the buyer, but to the seller.  The seller normally has a couple of days to accept/reject the offer.  And if you think this is an easy process, think again.  Through the counter-offer process, it may take days, if not weeks, prior to a resolution and concurrence with all of the clauses within a Purchase Agreement.  Now, put yourself in the “Twilight Zone,” and imagine going through this process with two foreign nationals who barely know how to speak English…ouchh!!  And who is in the middle?  You guessed it, yours truly -- the Business Broker!!

Most Purchase Agreements include two major clauses:  A Due Diligence clause giving the buyer the ability to review all records, financials, etc. for a period of ten to fifteen days, and a Lease Contingency.   Both of these clauses are potential deal breakers which the Business Broker must control.

During Due Diligence, the brokers deal with attorneys and CPAs who question and ask for everything—sometimes ridiculous things.  For example, I recently was asked by a lawyer for a list of 50 things to review on a due diligence for a business worth $50K.  I went back to him and politely asked him to back off.  Expectations can often be somewhat unrealistic.   What makes the job most difficult is that most businesses DO NOT keep good records and often cannot find the required documentation.  And, of course, we have to deal with the most feared animal of all:  THE LANDLORD!

The Lease Contingency basically says that if the buyer cannot get a lease all bets are off.  So the business broker deals with landlords for either an assignment of or a new lease for the buyer.  Simple, right??  Not really, the buyer must first be approved by the landlord and the landlord has no motivation to provide either an assignment or a new lease to the buyer—he already has someone (the seller) paying the rent. So, he shares all the risks and nothing to gain.  So, who negotiates most deals???  You guessed it – the Business Broker!!

And then, the Closing….but that merits a blog all by itself.  Do business brokers earn their commission?  You tell me!!

Should you want to know more about buying or selling a business, please contact Fernando Simo at 407-361-8886, email me at fsimo@tworld.com or please visit my webpage at www.bizbuyorsellflorida.com .

Last week I talked about the Selling Criteria or areas that can make your listing a lot more competitive, such as good financials, proper documentation (i.e.,lease and franchise agreements), equipment lists and others.   These are areas that brokers look into to determine how viable and competitive your listing is—looking for the probability of success.

During my discussion last week, I purposely omitted two additional elements (c’mon, I don’t want to tell you all in one week!!):  Price and Seller Financing.  I omitted them, because these two elements merit a separate discussion altogether.

Let’s address Price.  In our office, we use a terminology to define listings with the correct price structure—“In the Box.”  These are listings which appear to be within an appropriate market value.  In other words, if your type-business normally sells for a multiple of 2-3 times Owners Benefit (Net Profit plus owners salary, benefits, depreciation, interest and other miscellaneous additions) and yours is within those parameters—you are “IN THE BOX.”  That,  plus good financials and documentation would make the sale of your business almost a done deal—brokers like to deal with listings that are “In the Box.”

If your listing is not getting the activity that you would like, ask your broker if your listing is priced within the market.  Chances are that it will not be.  Price, like in residential real estate, is the main driver in determining how long your business will be in the market place.

Secondly, let’s talk about financing.  In a previous blog I mentioned that, in this economic environment, getting financing from lending institutions, such as the SBA or Commercial Banks has become increasingly difficult—although there are signs of improvements in this area.  So, if buyers cannot get financing through commercial banks, they cannot buy your business.   Seller financing, as mentioned before, has replaced much of the commercial banking lending.  What this means is that the degree of financing you provide, would be an indicator of how fast you will sell your business.  Today, as a rule of thumb, sellers should be looking at financing upwards of 50% of the transaction.   Additionally,  Buyers look upon this as a gesture of confidence in the business being sold—see my blog on why it makes sense to provide seller financing for more details.

So, before you beat up your business broker for the slow response on your listing, please determine if any of the above applies.  Trust me; you’ll be happier in the long run.

Should you want to know more about buying or selling a business, please contact Fernando Simo at 407-361-8886, email me at fsimo@tworld.com or please visit my webpage at www.bizbuyorsellflorida.com .

More than ever before, the selling of your business has become extremely competitive.  As a seller, in this market, you are competing with a greater volume of similiar businesses for sale, buyer's investment choices in this very tight and limited financing environment and, most importantly, the brokers' time and involvement in your listing.

Here, I would like to focus on the latter--the brokers' time and involvement in your listing.  By the way, by "broker" I do not mean the person who got your listing.  I really mean the thousand of other brokers in the market, whose purpose is to find a buyer for your listing and, as such, generate a commission.  They and your broker SELL YOUR BUSINESS!!  Now folks, they are human.  So, they look for listings that meet a "Selling Criteria"--in other words, the listings that have a greater probability to sell.  Now, what do I mean by "Selling Criteria?"  Let me give you a few elements that will help you meet it:

a.    Commission.  Many sellers like to pay less commission than standard on their listing.  Guess what?  Some brokers look at higher commission levels.  Money speaks so they move to higher commission listings.

b.    Financials.  In our business, we can disclose a business' Profit and Loss in more than one way.  Although there are several ways in which to do it, let me focus on three:

        1.    Owner to Prove.  This means that an owners' financial figures shown on the listing will be "proven" by the owner.  Brokers and buyers normally spend very little time on this type of listing.

        2.   Profit and Loss Statements.  This means that the numbers shown on the listing are backed by prepared financial statements--Quickbooks, Accountants, CPA's.  Obviously, a preference would be audited financial statements, which, by the way, are seldom provided.

        3.  Tax Returns.  Buyers and brokers both like Tax Returns.  Why?  They are normally and understated indicator of the financial results of the business--as I mentioned in a previous blog, the understatement occurs through cheating.

c.    Proper Documentation.  Lease agreements, Franchise Agreements, etc.  This information provides the broker with greater insight on your ability to sell the business and helps buyers make a quicker decision when buying it.

d.    Equipment List.  The list represents incremental value, therefore more appealing to buyers.

 So, if you want your business to sell, BE COMPETITIVE!!!  Ensure that you meet the very minimum level of the "Selling Criteria," as defined above, and provide your broker with the tools to be competitive and successful in selling your business.

Should you want to know more about buying or selling a business, please contact Fernando Simo at 407-361-8886, or email at fsimo@tworld.com, or please visit my website at www.bizbuyorsellflorida.com.