Sellers Articles Archives - Page 3 of 29 - Infinity Business Brokers

Business Sellers – Is Your Broker Protecting Your Business? They Should

Posted in Business Broker Why & How, Sellers Articles

Published April 6, 2023

If you are considering selling your business you don’t just need help, you need the right help.

You risk way more than you should by sticking a for-sale sign in the window. The powerful misconception that any business for sale is a business on the brink of failure can mean devastating consequences if your for-sale status is revealed. You entire staff can panic and quit. Clients can cancel contracts. Your competition can see a potential sale as a weakness to be exploited. It’s all bad.

How do you get the word out about selling your business without exposing yourself to the downfalls of everyone knowing it’s for sale? An experienced and qualified business broker.

A good broker acts as a shield and a buffer. They keep the for-sale status of your business a closely guarded secret while also marketing your business to potential buyers. They verify every person is who they say they are before they are allowed any access.

How? They actually talk to every potential buyer.

They get real legal names and true physical addresses – then they look people up. They ensure the proper nondisclosure agreements (NDAs) are signed and that everyone understand the rules. They make sure the people who are looking at your business can actually afford it so no one’s time is wasted. They act as a communication buffer between you and a buyer so the deal can stay on track.

It should go without saying that keeping potentially damaging information out of the wrong hands is extremely important.

Guess what? Not all business brokers do the job the way they should.

There are brokers who essentially robo-send NDAs to anyone who shoots them an email, no questions asked. They never actually speak with buyers, never verify identities or ask about available funds to by a business. These brokers don’t care about your business. They are just using your business to generate calls and emails from any and all buyers – without caring if those buyers are someone who should know about your for-sale status or listing details.

Avoid these brokers by asking questions – lots of questions – before you list your business. How will this broker ensure confidentiality? Do they require buyers to identify who they are before information is disclosed? Do they actually talk to every buyer before sending them the details of your business? They should.

Are you considering selling your business and want to know what measures we use to protect the confidentiality of your business and transaction? Would you like to know more about the questions we ask potential buyers? Ask us! Please leave any questions or comments and we would be happy to help.

Michael Monnot

Why You Might Be The Reason Your Deal Falls Apart (And How To Keep It From Happening)

Published March 13, 2023

A deal falling apart is the worst, particularly when it happens as you approach the closing table. Deals don’t close for a myriad of reasons, but to prevent it from happening in yours it might help to know what the market currently shows in terms of the reasons why deals fail. The IBBA and M&A Source Market Pulse Survey from the last half of 2022 offers some insight into why deals collapse.

The report shows that for Main Street businesses ($2MM or less) the main reason deals don’t close is poor financials – which doesn’t just mean that your business accounting system consists of a box of crumpled receipts under your desk. It also means you may have misrepresented, not fully understood or embellished your numbers. Misrepresenting your numbers, whether intentional or not, is a bad look and can lead a buyer to mistrust you to the point that they no longer want to continue with the deal.

Across both Main Street and Lower Middle Market ($2MM to $50MM) the overall reason deals don’t close is an unrealistic seller value expectation. You may have a magic number in your head, you may have a figure you’d love to get for your business that is based on what you’ve invested over the years, you may have a written valuation from a professional that specializes in your industry – but in the reality of the business-for-sale market all of those numbers essentially mean nothing. Your business is actually worth what a buyer actually pays you for it.

Another major factor in the death of deals is time. The longer you make a buyer wait, the longer your business is listed, the longer the transaction takes to work it’s way through the process the more likely it is to die. People change their minds, the market fluctuates, life circumstances get in the way. The way to combat time as a killer is to be ready. Have your financials in order, prep (with your business broker’s help) the answers to commonly asked buyer questions and be proactive with buyer requests – handling them the moment they come in.

If you’re a business buyer, know going in that some really great businesses have records that are lackluster (in terms of organization) at best. Also understand that it can be incredibly difficult for a seller to put a number on all their years of hard work and investment. Be patient with your negotiations and ready to possibly dig through a box of receipts.

The moral of this story is although some reasons your deal might fall apart are out of your hands – most reasons are absolutely within your control. Go in ready, with realistic expectations and you’ll have a far better chance of seeing that closing table.

Do you have a Main Street business to sell and want to know what businesses like yours have recently sold for? Would you like to know how to get your financials ready for buyer’s eyes? Do you have questions about how to negotiate with a seller who has their business listed for an unrealistic price? Ask us! Please leave any questions or comments and we would be happy to help.

Michael Monnot

What’s In A Closing? An Explanation For Buyers + Sellers

Published March 6, 2023

When you start the process to buy or sell a business (especially if it’s your first time doing so) you will likely encounter some new lingo that you may or may not be familiar with. For instance, the process of buying and selling a business is referred to as a transaction, the professionals who help guide you through the process are known as business brokers and the end of the transaction is called a closing.

What is a closing exactly?

Put simply, a closing is the goal of every business-for-sale deal. It is the end point of the transaction and occurs when all parties included have signed all necessary documents, when the money has changed hands and the keys to the business are given to the new owner.

In many circumstances, this will all occur at one meeting, sometimes referred to as the closing table. All parties will arrive ready to sign and exchange the necessary funds and keys. The business brokers and business transaction attorneys will be present, and typically the funds for the sale will be in the hands of an escrow agent who will release them once the appropriate papers are signed.

In other transactions, the escrow agent acts as a kind of intermediary for the closing. Each party will receive and sign the necessary documents and then send them to the escrow agent. Once the agent has received everything needed for the closing from both parties, the funds in escrow will be released to the seller and the deal will then be officially closed.

Another aspect of the closing process usually involves a walk-through of the business and an inventory count. This is important because if equipment or inventory has changed, the selling price of the business may need to be adjusted.

The closing type and necessity of a walk-through will depend on the deal that has been reached and the preference of the parties involved. Ask your business broker about which type of closing you will likely see at the end of your specific transaction.

Are you a business buyer or seller with questions about the closing process? Would you like to know more about walk-throughs or inventory counts? Ask us! Please leave us a comment or question here and we will happily get those questions answered.

Michael Monnot

When Your Parent’s Path Isn’t Your Path – An Important Conversation For Entrepreneurial Kids

Published February 27, 2023

Sometimes parents will buy or start a business because they hope to leave their children a legacy; the legacy of multi-generational business ownership. What happens if the children of those parents dread the idea of having to take over their parents’ business? The time for that difficult conversation is always NOW. If you are the child of business owners, ask yourself these questions:

Did you grow up working in the family business, but always dreamed of doing something else?

Would you only take over the family business out of a sense of duty or guilt and not because you really want to?

Have you had this conversation with your folks?

If any of these questions resonate with you, then perhaps it is time for you (and your family) to take a good look at what the future of you, your family, and the business hold.

Some things to consider?

If you would only take over the family business because you feel like you are bound by a sense of duty, then that decision would probably be a mistake. Businesses are a life-encompassing affair, and as the owner your heart really needs to be invested in the success of the business if it is going to continue to succeed the way it did when your folks were running the place. We frequently see small businesses falter when the second (or third) generation takes over without the same amount of drive.

If you have passion in another industry, then instead of sacrificing your goals to step into the family business role the family tradition of entrepreneurship can continue by selling your parent’s business when they are ready to retire, and then take the proceeds to invest in a business venture where you will have the passion and drive to continue the family legacy.

These considerations are important, and the conversation needs to happen sooner rather than later.

If you are the parent in this situation, you need to be honest with your kids about your expectations long before it is time for you to step down as owner. Although you may love your business, your kids might not, and it would be a far more productive legacy for all your hard work if you invested in a business where your children would be willing and able to succeed.

Do you own a family business and are concerned that your kids don’t want to follow the same path? Are you the child of a small business owner who likes the idea of staying within a family of entrepreneurs, just in an industry where you have passion? Talk to us! Leave a comment or question, and we can help you decide what would work best for your family and your legacy.

Michael Monnot

Does Your Broker Care About Qualified And Informed Buyers? They Should

Posted in Business Broker Why & How, Buyers Articles, Sellers Articles

Published February 6, 2023

The process of buying and selling businesses can be a bit frustrating. There are rules and procedures in place that ensure the for-sale status and proprietary information of a business on the market only ends up in the hands of the people it should. Those rules and procedures rely on vetting potential buyers and then having buyers who are qualified sign the appropriate nondisclosure agreements (NDAs).

Here’s how it typically should look. A buyer calls a business broker and has a conversation about their goals for business ownership, the capital they have ready to invest and their past experience. The broker then uses that information to put together a few listings that look like they might match. If a listing or two catches the buyer’s eye, they sign the NDA for that business in order to find out more (like the location, basic financials, etc.). If they like what they see, they will then coordinate a conference call or face to face meeting with the business seller to ask questions. After a few of these meetings/calls a site visit might be scheduled before or after hours when the staff and customers won’t be around. If a buyer is interested they can submit a purchase offer and negotiations can begin.

Notice something? The sale of a business is complicated, requires a lot of steps and a lot of time. If the brokers involved are doing their job the buyers who enter this complex and time consuming process are both aware of what they’re looking for and actually able to buy the business in the end.

Here’s what you don’t want. A broker who will send you dozens of NDAs to sign without ever speaking to you, meaning you end up wasting your time looking at businesses that would never meet your goals. A broker who will bring a parade buyers through your business for site visits that could never afford to actually buy your business. A broker who will entertain the whims of a buyer who doesn’t have the practical experience necessary to qualify for a SBA loan or that your commercial landlord would immediately reject.

A broker who asks the right questions keeps a deal on track and keeps from wasting everyone’s time. You want a broker who actually talks to buyers. You want to be (if you’re a buyer) and want to work with (if you’re a seller) a buyer who understands the process, knows what businesses will actually fit with their goals and has the money necessary to get a deal to closing.

The message here is you need to ask any broker you work with questions and you need to keep an eye out for red flags. If you’re a buyer a broker should be asking you LOTS of questions before they send you any NDA. If you’re a seller your broker should only be bringing you buyers who are qualified and would be successful future owners of your business.

Are you looking at businesses to buy and haven’t had a broker yet who asked you a single question? Are you considering selling your business and want to know what type of buyer would be a good for your business? Ask us! Leave any questions or comments and we would be happy to help.

Michael Monnot

How An Innocent Conversation Can Mean The Destruction Of Your Deal: Buyers, Sellers + Confidentiality

Published January 30, 2023

Confidentiality is a big, big part of business sales.

What is confidentiality? When a business is for sale, the only people who should know that it is on the market are the seller, the business brokers and attorneys involved and qualified buyers who have signed the appropriate non-disclosure agreements. That’s it.

Most people new to the process don’t understand the importance of confidentiality. When you are buying a business, you want to know absolutely everything about the business so you can make an educated decision. When you are selling a business, you want to get the word out there so you can reach the most possible buyers. Confidentiality seems to stand in the way of those two goals, right?

It does, and it doesn’t. Sure, confidentiality makes it a little more difficult to spread the word or gather information, but there is a very big reason why confidentiality needs to be in place. Without it, a business stands to lose – a lot.

What can happen if confidentiality is breached and the for-sale status of a business gets disclosed? We’ve seen an entire staff quit and move to the competition, taking all of their regular customers with them. We’ve seen customers stop frequenting their once-favorite establishments. We’ve seen clients who are under service contracts cancel their contracts in favor of a more stable company. We’ve seen the local competition move in for the kill. Bottom line? It can be a disaster.

I signed the non-disclosure agreements and I’m not going to tell anyone, why is this such a big deal?

Here’s why. Most of the time when a business gets inappropriately disclosed it’s not because someone was shouting from the from the rooftops. A seemingly innocent conversation can derail a deal and hurt a business. Here’s an example:

A client was flying in from out of town to get a first look at a restaurant he was already very interested in buying. He had signed the appropriate non-disclosure agreements and hadn’t told anyone he knew the name of the restaurant or exactly where it was. On the plane, he strikes up a conversation with the woman sitting next to him. She tells him the name of the exclusive gated community where she lives, and he says “Hey! That’s where I’m going too! I’m thinking about buying the restaurant in that community!” She now knows that the restaurant is for sale, so when she gets off the plane a few hours later she casually mentions the conversation to a friend in the same community. “What a small world, right?” Within a few days the entire community knows about the for-sale status of the restaurant, including the restaurant staff who panic and quit en masse. This seemingly innocent conversation between complete strangers caused serious staffing issues and nightmare for both the business seller (who now has to find, hire and train almost an entirely new staff) and the buyer (who now has to take over the business without the experienced employees they were going to depend on).

The most important thing that you can do as both a buyer and a seller is keep the for-sale status of a business to yourself!

Are you a buyer who wants to know more about how you get information on a business without breaching confidentiality? Are you a seller who wants to know how you can keep your business sale a well-guarded secret? Ask us! Please leave a comment or question here, and we will be happy to help.

Michael Monnot

What An Earn-Out Is And Why It’s Probably Not For You

Published January 23, 2023

When you’re in the business-for-sale market, it can take some creative deal making to put together an agreement that makes everyone involved happy – and sometimes that creative deal making involves an earn-out.

What is an earn-out?

This type of arrangement is typical when the value of a business to a seller is much higher than the value to a buyer, usually because of expected future earnings. Here’s an example:

A small boutique clothing manufacturer has recently secured a major contract with a very large retailer, a contract that will significantly raise the value of the business over the course of the next few years. The seller of the business, who has worked long and hard to secure this deal, wants to be paid for the future value of the business. A buyer, on the other hand, only wants to pay for what the business is currently worth – not including any potential future earnings.

One way to bridge this massive valuation gap is the earn-out.

How does it work?

A buyer pays the seller an initial amount, then (as in our above example) as the boutique manufacturer reaches certain milestones with the new large retail contract, the seller gets paid for those milestones. In an earn-out the valuation gap is bridged by paying for the future earnings as they happen instead of paying for the promise that they might.

Is an earn-out for me?

Not likely. As you can see from the above example, an earn out requires a very specific set of circumstances. Most business deals involve seller financing or loans from the SBA (Small Business Administration) instead.

How do I find out if an earn-out would be appropriate for a business I’m selling or considering buying?

Ask your business broker. Any experienced and qualified business broker will be able to advise you on the right type of deal for your business or for any business you are considering.

Have more questions about creative deals? Want to know if an earn-out is for you? Ask us! Please feel free to leave us a comment or question and we would be happy to help.

Michael Monnot

Is My Business Broker A “Good” One? What You Shouldn’t Pay For

Posted in Business Broker Why & How, Buyers Articles, Sellers Articles

Published December 12, 2022

Like any industry, there are good business brokers and there are those who should find another way to make a living. Determining if the broker you’ve chosen falls into the “good” category might seem tough, but one way you can decide is by looking at the things your broker is willing to do without you having to pay extra for that service.

Most brokers earn a commission at closing, and the amount is based on a percentage of the sale price. If you are a seller, this percentage will be negotiated at the time of listing and will be a part of the listing agreement.

Beware the broker who will forgo the listing agreement or who will drastically cut their commission percentage just to get your listing. A great broker will stand firm of their typical percentage because they know how much work they are putting into selling your business. A desperate broker who can’t get and keep regular business will be willing to do anything to get you to sign on the bottom line. Also beware of a broker who charges extra fees for something as basic as your marketing package or advertising costs. These basic elements necessary to sell your business come out of the commission your broker makes at the time of the sale, not before.

For buyers, your broker gets a chunk of the money you pay for the business, so technically you are paying them even though you don’t have an agreement. Beware the broker who forces you to pay up front for their services. This shows a lack of confidence in their ability to find you a business and get you all the way through to closing. A great broker is not going to demand a retainer, nor are they going to charge you extra for help with the things every buyer needs – like basic assistance with licensing. If you are getting billed for basic services, then you probably need a different broker.

The key here is to watch for those brokers who put the amount of money they make in front of the reason they do what they do for a living. A great broker likes their job. They like helping the small business community grow, and they live for the chase and the thrill of negotiations. They don’t live to nickel and dime their clients. They get the vast majority of their listings through the referrals by former clients and members of their local small business community. They go to bat for their clients and are willing to help.

If the things we’ve named for a great broker don’t sound anything like the broker you are currently working with – it might be time for a change. When you initially interview brokers – ask about their referral rate, what kinds of fees they charge (there shouldn’t be any besides the commission) and what kind of percentage they take for commissions. The answers to these questions will speak volumes about the motivations of your broker and give you a good idea of where they fall on the great vs. not-so-great broker divide.

Have you had a not-so-great broker experience? Do you have questions about our referral rates and typical commission percentages? Ask us! Leave a comment or question, and we would be happy to help.

Michael Monnot

Honesty Vs. Telling You What You Want To Hear – Selling Your Business With A Broker

Posted in Sellers Articles

Published November 3, 2022

If you really tried to add up all the hours you’ve put in, every penny you’ve spent, all the stress you’ve endured – it would probably mean your business is worth an absolutely insane amount of money. It would be great, right?

In reality your business is only worth what someone is willing to pay for it, so pricing your business correctly when you list is extremely important. Price it too low and you’re leaving money on the table. Price it too high and buyers probably won’t attempt to make an offer. You need to be in that sweet spot where you’re price reflects the actual cash flow of the business but isn’t delusional.

How do you figure out the sweet spot for your listing price? Talk to an experienced and qualified business broker. They’ll help you consider cash flow, your equipment and inventory, upcoming contracts, debts the business holds, your commercial lease, what comparable businesses have recently sold for, etc. and guide you to a listing price that gives you your best chance for the highest return on your investment.

Here’s the most important point. If you’ve chosen the right broker their goal is to help you sell your business successfully. The only way that’s going to happen is if the listing price is right. If you’ve got a broker who will let you list for whatever you want – that’s a problem.

Letting a client list their business for whatever they want is a way for some brokers to get listings – listings they know won’t sell. Why would they do this? Any listings they have will generate calls from buyers, so when a buyer inquires about your substantially overpriced listing that broker will use the opportunity to steer your potential buyer to another of their listings they can actually sell. Your business languishes on the market indefinitely and you don’t see the benefit of the listing – the broker does.

How do you keep this form happening to you? Hire a broker who tells you the truth. You might not like what you hear, but a broker who actually wants to sell your business isn’t going to let you list for an astronomical price. They’re going to help you hit that sweet spot – even if it’s less than you would ideally want. A good broker bases their listing prices in reality, not with the goal of getting the listing at any cost.

Ask lots of questions in your initial conversations with brokers. If you’re requesting a specific listing price and they don’t agree, ask why. If they are willing to let you choose any number you want – remember in that scenario you aren’t the one who benefits.

Have you tried to sell your business without any luck and now think it was because you listed it for the wrong price? Do you want to know what businesses like yours have recently sold for? Ask us! Leave any questions or comments and we would be happy to help.

Michael Monnot