The purchase and sale of a business is, for most people, the largest single financial transaction they will ever complete.  The seller is frequently passing on to a stranger the result of his life’s work, and they usually expect the proceeds of the sale to take care of their retirement or to fund some other endeavor.

The buyer, on the other hand, is usually investing a substantial part of his liquid assets, and frequently is obligating himself to substantial loans to the seller, a financial institution, or both.

Therefore, it is not surprising that buyers and sellers are nervous in this high stakes situation at which most of them have little or no experience.

In this situation, our best advice to you is to stay calm.  You may not have experience in selling businesses, but Acquisitions Unlimited does.  More importantly, the good judgment and common sense that made you a successful businessperson will see you successfully through the sale of your business.

In order to ensure that the sale of your business goes as smoothly as possible… we would like to share with you some of the do’s and don’ts in selling a business that we have learned through experience over the years.  Ignoring these tips can cause anything from minor problems to the failure of a business to sell.  The sale of your business will go much more quickly, smoothly and successfully if you keep these points in mind.

The following list is not in order of importance.  In any given situation, one or more of them can be important.

R    Do be flexible and keep an open mind.  The sale of a business encompasses many factors: price, down payment, interest rate, term of notes, future involvement of the seller financing, relationships with suppliers and customers, etc.  Don’t take an adamant stand on any one item.  Look at the whole picture.  Selling a business should not be a battle of wills.

We are not suggesting that you accept a “bad” deal.  We are suggesting that your best interests are served by working with us to negotiate a good offer.  Frequently, you can “give in” on an area of minor importance, and “get in” on an area of major importance to you.

Q    Don’t surprise anyone with undisclosed problems.  Surprises kill deals.  All businesses have problems.  There is no such thing as a perfect business.  Tell Acquisitions Unlimited up front about all current or past problems with your business, i.e. lower than expected sales or profits, loss of a major customer, lawsuits, having been in Chapter 11, etc.  Do not try to minimize them or pretend they do not exist.  This will enable us to explain them in their best light to a prospective buyer.

Almost anything can be explained satisfactorily to a buyer if they are told about it early on.  Having a buyer discover a problem at the last minute can kill a sale.  No one wants to buy a business from someone who has misled them either through ignorance or avarice.  Honesty is always the best policy.

R    Do continue to operate your business as if it were not for sale.  Since Acquisitions Unlimited only represents good businesses, we are generally successful in selling most of our client’s businesses.  However, while we are marketing your business it is not the time to “rest on your oars.”  You owe it to your employees, your customers, and most of all to yourself, to continue to purchase needed equipment and inventory, seek out new customers, etc.

If a buyer finds out about a sudden loss of sales, or the inability to grow the business because of insufficient inventory or equipment, he can lose interest in the business very quickly.

Q    Don’t try too hard to impress a prospective Buyer.  Just be yourself.  Occasionally, owners act as if they have all the answers and let it be known that they are doing the best possible job of running their business.  This may help our ego, but it does not help the sale of your business.  If you are so good that you are irreplaceable, your business is probably unsaleable.  What buyers would want to try to follow such a tough act?  All buyers want to see potential for them to grow the business.

We don’t mean that you should be too humble … you have a right to be proud of your success.  Just don’t convince the buyer that he can’t measure up to your standards.  If you do, he will probably purchase someone else’s business … one that a mere mortal can run.

R    Do be careful what you say to a prospective Buyer.  Feel free to discuss any aspect of the operation of your business.  However, do not discuss the purchase price, down payment, etc.  You do not want to negotiate a sale prematurely.  If a buyer asks you about these items, refer him to Acquisitions Unlimited.

Try to avoid a detailed discussion of the financial statements of the company.  It is likely that you will quote some details inaccurately in an impromptu discussion.  These details will probably be remembered at a later date and may cause problems.  Again, refer the buyer to Acquisitions Unlimited.

R    Do minimize your exposure to a prospective buyer.  Once you have accepted an Offer to Purchase, try to minimize further contact with the buyer until closing.  You, or one of your employees, may inadvertently say or do something that “turns the buyer off.”  Think about that.  You already have a deal.  All it has to do is close.  It can’t get any better than that.  Any changes are likely to be to your disadvantage.

You must be careful not to give the impression of being aloof or trying to hide something.  However, the buyer does not have to work in the business prior to the closing to see if he likes it.  You have nothing to gain and potentially everything to lose by being “chummy” with a buyer prior to closing.  Remember, a sale is not completed until it is closed.

Q    Don’t tell your employees the business is for sale.  Most business people are, by nature, honest and straightforward people.  Because of this, frequently they feel they should tell their key employees the business is for sale.  This is a mistake.  Again, you have nothing to gain and potentially something to lose.

People fear the unknown.  A key employee may look for another job, or accept an offer he may otherwise have turned down if he finds out the business is for sale.  This is not fair to you or to the buyer.  You do not want to lose a valuable employee – and neither does the buyer.  After all, he is paying you a good price for your business because, among other things, you have key employees in place.  The loss of one of these may jeopardize the sale.

The right time to tell the employees is after the closing.  Then, you can introduce the buyer to the employees and tell them something like: “This is Mr. Davis.  He has just purchased the company.  However, I am going to be around for a while and things are only going to be bigger and better.”  This removes the fear of the unknown.  Your employees will also be favorably impressed with the same qualities of the buyer that induced you to sell your business to him.

R    Do beware of “Seller’s Remorse.”  You should know in advance that there is a good chance that prior to closing you will wonder if you are doing the right thing.  This is perfectly normal.  After all, your business has probably been a major part of your life for a number of years.  Selling it is almost like losing a member of the family.

Unfortunately, the acquaintances you talk to about this are usually not much help.  You will probably hear many horror stories and be told that you did not get enough money for your business, etc.  In many cases, your golfing buddy or next door neighbor is not qualified to make these judgments – but that will

Jan Fowler owns Acquisitions-Unlimited, Inc., a Florida based Mergers & Acquisitions, business intermediary firm.   She has been involved in the sale of over 200 different businesses.   If you are considering selling a business, see www.acquisitions-unlimited.com.

THE LAST WILL AND TESTAMENT

Many of you are familiar with a will. A will provides the mechanism for distribution of any property you own at death, based upon your intent. If you do not have a will at your death, the state will determine who gets your property! The most important aspect of a will is to transfer everything you own to the people that you want to receive the items. The best thing to do when writing your Last Will and Testament is to make a list of all items that are important to you and identify the people you want to receive the items. Then, be sure to include a clause to cover items that you may forget to give someone or items you may receive after you write the will. Finally, remember to include a clause stipulating how taxes will be paid. If you forget this clause, the government will charge each beneficiary for the taxes due, on a pro-rata share.
Remember, your Last Will and Testament is the first and most important document in your estate.

THE LIVING WILL

Some people may think, if you have a Living Will, then you have a will. WRONG! A Living Will is known as a “Healthcare Directive.” A Living Will states your wishes on medical treatment if you cannot make decisions for yourself. Not only does it protect you if you want to DENY all available medical treatment, but it also protects you if you want to make sure you RECEIVE all possible medical treatment. In the absence of a Living Will, the doctors who treat you will try to determine what your best options are, with possible consent required from a family member. The Living Will removes this responsibility from the doctors and any surviving family members and states what you want and who you want to make decisions on your behalf.
There are three conditions upon which most Living Wills become effective. (1) If you are diagnosed to be close to death from a terminal condition or to be permanently comatose, (2) If you cannot communicate your own wishes for your medical care, orally, in writing, or by other gestures, and (3) If the medical personnel attending you are not notified of any written directions for your medical care.
Most Living Wills provide for a “proxy,” which is basically the same thing as a power of attorney except it is limited only to the Living Will. A “proxy” is a person who will make sure that your intentions are carried out. Remember, a Living Will does not operate as a Last Will and Testament, it only assists you in medical decisions; you still need your Last Will and Testament.

THE LIVING TRUST

The Living Trust can be the most complicated of any of your estate documents. Basically, a Living Trust is a document, that is created and takes effect while you are alive, compared to a Testamentary Trust created while you are alive but effective upon your death. The benefits to the Living Trust are that you can avoid Probate Court and all related costs. However, you can change your mind after you write a Living Trust and you can void out the trust before your death. A Living Trust allows you to transfer ownership of your property to your intended beneficiaries while retaining benefits for yourself until your death. Therefore, you DO NOT lose control of your property while you are alive, and upon your death, a successor Trustee will take over to distribute the property to the beneficiaries in accordance with your wishes. While the Living Trust may avoid probate, it doesn’t avoid creditors or taxes, but it does provide for a quick and efficient method of distributing your property, which may discourage creditors. Remember, you do not save any estate taxes with a living trust over a Last Will and Testament, since you maintain “control” of all aspects of the trust until you die. The two key benefits involve avoiding probate court and its related expenses and keeping your estate private since the public does not have access to the trust documents.

POWER OF ATTORNEY

The fourth and final document that is needed in an estate plan is a Power of Attorney. A Power of Attorney is necessary in the event you are unable to make sound financial decisions regarding your assets during your lifetime. The Power of Attorney does not become effective until it is executed by the individual you state in the written document. It is important that you plan for the unfortunate situation when you are not able to make sound financial decisions. The Power of Attorney assists in a smooth transaction and can provide you with sound financial decisions that will enable you to have a steady steam of income for the rest of your life. Remember, you can always change the named individual or the terms, as long as you are of sound financial mind.

CONCLUSION

The four documents we have presented in this Tax Tip are important elements of any successful estate planning. While this is just a short introduction to the topics, it is imperative to realize the importance of each document. The Last Will and Testament acts like a road map with the Living Will and Living Trust helping to direct the heirs where to look for the needed information. The Living Will is crucial in conveying your intent regarding any medical wishes you may have, while the Living Trust is the document that will transfer your property to your intended beneficiaries with the benefit of saving time and money at your death. Finally, the Power of Attorney protects you in the event of an unsound mind while you are alive. Don’t hesitate to do something now!

If you would like more information on any of these four documents, please contact Bart at The Center or visit our website at www.taxplanning.com (02-10)

Dr. Bart A. Basi is an expert on closely-held companies, an attorney, a Certified Public Accountant and the President of the Center for Financial, Legal & Tax Planning, Inc. He is a member of the American Bar Association’s Tax Committees on Closely-Held Businesses and Business Planning.

Experiencing declining sales and revenues?

Having difficulty in making loan payments on existing loans?

Finding it harder to make payroll?

Purchasing supplies or inventory becoming harder?

Having trouble finding the money to pay rent or even operating expenses?

The American Recovery and Reinvestment Act permits small businesses to apply for loans to cover one or more qualifying small business loans for up to six months. These loans cover the principle and interest payments of any business debts like credit card obligations, mortgages, lines of credit, and balances due to suppliers, venders and utilities.

American Recovery and Reinvestment Act loans are interest free and payment begins 12 months after securing the loan. The loans are capped at $35,000 and there is only one loan per business.

The ARC loans with be available until September 30, 2010 or as long as funding is available whichever come first.

In order to see if your business qualities visit
http://www.sba.gov/recovery/agencyplans/index.html

In this article we will be focusing on the SBA 7a Loans as they relate to business acquisitions.

Mike Pierson, Vice President and loan officer with Community South Bank, contacted me with the news that Community South Bank has recently reentered the Florida market and they are making loans available from $150,000 to $2,500,000.

Stephen Mariani from Diamond Financial says that they are also a source for the SBA 7a loans and work with some of the countries most aggressive non-bank SBA lenders.

This is great news for buyers and sellers of businesses.

Buyers can leverage themselves into a business with as little as 20% down with the bank loaning up to 80% for up to 10 years with no prepayment penalty. The loans are capped at $2.0 million. This will open the door for the buyer to acquire a larger business than they could if they had to pay all cash or procured seller financing for the business. Most time, the buyer is required to use his or her home for additional collateral over and above the first mortgage already in place. It also extends the loan repayment time when compared with seller financing. Many SBA loans will include working capital for the buyer. We have found that many sellers are reluctant to offer seller financing.

Sellers benefit from the ability to receive more cash at closing. In some cases the SBA will require the owner to hold a small personal financing note at closing. But it does allow the owner to walk away with a larger sum. A caveat being there is more paperwork involved for the seller, but short term pain for long term gain.

All and all it is a good deal for both parties when no other financing is available to complete the transaction.

Gregory Colvin is a mergers and acquisitions specialist with Acquisitions Unlimited Inc. in Tampa Florida and has facilitated the sale of numerous businesses. Greg can be contacted at 813-920-7880. Visit www.Acquisitions-Unlimited.com

Resources:
Mike Pierson-Vice President/ Loan Officer
850-650-2330 Mobile 850-232-3337
mpierson@communitysouthlending.com
http://www.communitysouthlending.com/

Stephen Mariani-President Diamond Financial
919-782-3101
steven@easysba.com
http://diamondfs.com/sbaloans.htm

U.S. Small Business Administration
http://www.sba.gov/services/financialassistance/sbaloantopics/7a/index.html

John Cathcart-Regions Bank
813-855-0214
http://www.regions.com/small_business/fin_sba_loans.rf