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.

Many business owners will attempt to sell the business themselves.  Others will turn to the services of a business broker or mergers and acquisitions professional to handle the marketing and sale of their business.

The procedure is the same if they sell it on their own or hire a professional. By hiring a professional, some of these steps will be handled by the broker rather than the seller.

Let’s follow the process using a business broker.

First the business broker will want to meet with the owner.  This  gives both parties a chance to get acquainted and learn about the business.  Some of the items that the broker will need to assess the asking price for the owner are:

1. The last three years tax returns and year to date profit and loss statement.

2. An equipment list.  This list should include the current market value of the equipment in its current age and condition.  The equipment list should be continually updated throughout the marketing period.  If owner financing will be offered, the equipment list will be used by the closing attorney for the Uniform Commercial Code lien. Also known as the UCC lien.  This document will filed with state and county where the business is located. It is necessary in the unlikely event that the buyer defaults on the loan.

3. The dollar amount of inventory that is typically stocked by the business and will be included in the sale.  Inventory can be handled in two fashions.  It can be included in the sale price or could be over and above the business sale price.  A physical inventory is to be performed by seller and buyer a day or two before closing. 

Using these items, the broker can advise the business owner on an estimated sale price. If the business owner agrees to bring the company to market at that price, then a listing contract or engagement agreement is completed between the seller and the broker.  This agreement is similar to the contract between a real estate agent and a home owner when a home is being marketed and sold.

The broker then begins the process of marketing the business.  Most brokers will create a marketing packet.  It will include a profile of the business, an analysis of the cash flow from the tax returns and profit and loss statement, list of the equipment and photos of the business. 

Marketing a business in the past included newspaper advertising. Now the internet has become a more powerful and effective tool.  Most business brokers subscribe to between 3 to 4 business marketing websites.  This exposes the business to a larger base of national and international buyers.  Brokers may  belong to associations such as the Business Brokers of Florida or similar organization that lists businesses for sale to other brokers.  This increases the exposure of the business to others who may be searching for a business in that industry.

Brokers should have a nondisclosure /confidentiality agreement that prospects, wanting to learn more about the business are required to sign.  (If the owner of the business is selling the business themselves, they too should have a nondisclosure agreement to protect themselves and their proprietary information.)

When prospects call the broker for information about the business, the prospect will be prequalified.  The broker will determine if the prospect has experience in the operation of a business in that field.  And if they have the necessary capital to purchase the company. The broker will also find out the time frame within which the buyer would like to close the deal. 

If the prospect looks like a good fit for the business, then a meeting with the owner is arranged..  This meeting gives the prospect and the seller an opportunity to meet and get acquainted.  It also gives the prospect an idea what the business looks like and to ask any questions they may have.  The broker will,prior to talking with any prospect, accumulate as much information as possible about the business, but many buyers will like to hear the information from the owner.

The next step, if the prospect is interested, will be to complete an asset purchase agreement.  This agreement sets down on paper the offered price and any terms that the buyer would require to complete the purchase.  This agreement should include a date for acceptance and a proposed closing date.

The asset purchase agreement is then presented to the seller.  The seller has the option of accepting the contract, rejecting the contract or countering the offer.

Once the contract is agreed upon by both parties, the due diligence process begins.  The buyer has a set amount of days to request the documents that they need to complete a review of the business.  After receiving the information and, if satisfied, both parties agree to continue to closing.

This is the busiest time, with coordination of all the parties in the closing process.  The business broker will remain in consistent contact with all parties.  These parties would include the closing attorney, the inventory company, the buyer and the seller.

Closing day arrives.  The buyer and seller will meet in the closing attorney’s office.  All papers will be signed and the company will change hands.  And the seller will leave the closing with a large check. 

When the time comes to sell your business, you should consider using the professional services of a business broker.

Greg Colvin is an author of business articles and is associated with Acquisitions Unlimited, Inc, a Tampa based M&A/business brokerage firm.   www.acquisitions-unlimited.com.

Acquisitions Unlimited, Inc. today announced its facilitation of the sale and merger of an operating Florida company in the communications services sector.
CCE Services, Inc, Tampa, Florida is a communications design engineering firm that provides engineering and consulting to global cable companies such as Time Warner, Comcast and Cox Communications. It was started by two partners 11 years ago and has completed projects all over the United States. CCE Services merged with Truevance Management, Inc. in Jacksonville, Florida and TBW Solutions, LLC in Atlanta, Georgia.
Bill Johnson, former CEO of Northstar Communications, will serve as President and CEO of the new merged entity of the three companies. The new company is named Truenet Communications, Inc.  Truenet Communications is a diversified communications network infrastructure services provider specializing in delivering consulting, engineering, installation and technical services to Broadband, Wireless and Wireline Carrier, Energy and Utility, and corporate and government markets.
Acquisitions Unlimited, Inc represented CCE Services, Inc. and was instrumental in the merger. Jan Fowler, President of Acquisitions Unlimited, Inc. commented, “This merger was a perfect and well executed joining of the brightest minds in the industry and we know this will deliver a great enhancement in services to the customers of all three companies. The future is bright for Truenet Communications.”
Acquisitions Unlimited, Inc.
813-920-7880
Email: info@acquisitions-unlimited.com
Website: www.acquisitions-unlimited.com.

Tip two:
Do some research on the type of business you would enjoy running. When you acquire a business, you are purchasing a job. So it is important to find out what is involved in running a business in that industry. Restaurants, bars and convenience stores involve long hours. Will the business require special skills or licenses that you have to qualify for, or a waiting period to take the test for that license?
Are you willing to invest the time and money to make the business successful? I once sold a business where part of the owner’s job was to market. The business contacts were made visiting existing and acquiring new clients on weekends. The new owner purchased the business and became upset that the clients were not calling him. When asked if he was marketing to the clients, he stated that he wasn’t going to work on weekends.

Tip Three:
Get as much information on the business up front. Request copies of at least three years tax returns and current profit and loss statements and, if you are not comfortable reviewing them, have your CPA look them over. If you don’t have CPA, now is the time to hire one. You will need an accountant or CPA for the new business.

Tip Four:
Ask for an equipment list from the Seller. If you are purchasing the property, ask for a site plan and see if the owner has a recent appraisal of the real estate. If the business is leasing the property, ask for a copy of the lease. Check the terms as to what is covered, the length of the lease. Does it contain options to renew? You don’t want to be forced to relocate the business in the near future because the lease expires. And find out what is prohibited by the landlord. You may think that a large new sign is what the business needs, but the landlord does not want it on the property.

Tip Five:
Check the local ordinances as what activities the business can and cannot engage in. Perhaps you want to buy a restaurant and what to add live music at night. The local laws may contain a noise ordinance that would prohibit having a band.

Tip Six:
Where do you find businesses for sale? You could check the newspaper classifieds, though the businesses for sale column is thinner than it used to be just five years ago, there are still businesses listed there.
Now businesses for sale tend to be listed on the internet, with websites like BizBuySell.com, BusinessNation.com, BusinessesforSale.com, Acquisitions-Unlimited.com and BusinessForSaleFlorida.biz.
Network with people who own businesses in the industry which you are considering. Getting to know other business owners is good idea. They will be a source of information.

Tip Seven:
Your best resource is a professional business broker. In many states a real estate license is required to sell businesses, but a business broker is trained to sell businesses, not homes. Many professional business brokers belong to trade associations, like the International Business Brokers Association and Business Brokers of Florida. These associations provide training in the field of business brokerage and mergers and acquisitions.
Business brokers are in contact with business owners and, because of this, know when the owner is considering selling his business, but does not want to advertise it on the open market.
When working with a broker, he or she will attempt to pre-qualify a buyer by asking a series of questions. These questions will include what kind of business are you looking for and, what type of business would you be interested in operating. Another question is how much money does the business need to generate after expenses (also known as cash flow to owner) for you to live comfortably. This leads to the broker’s the next question.
“How much money would you like to invest in a business?” This is a polite way of asking; “How much money do you have?” The wrong answer is; “As much as it takes.” Or; “It depends on the business.” Unless you are Warren Buffet, it doesn’t depend on the business. If you as rich as Warren Buffet or Bill Gates tell the broker up front, if not state that monetary limit.
The broker will be spending time searching for a business in your chosen industry, within your price range, and with the desired cash flow, but can only efficiently help you if he knows your down payment comfort level.
Brokers prepare business profiles on the businesses that they have listed and, theses profiles include the information listed in tips three, four and five. So you don’t have to search for this information. Let me say, however, that there are cash businesses.
Business brokers have contacts that make the acquisition process smoother than attempting the process solo. These contacts include attorneys that specialize in business closings. Since these attorneys are involved in closings on a daily basis, they have the forms prepared and the staff can quickly prepare the necessary documents. This results in the procedure being done correctly and often with a cost savings.
Business brokers have contacts in the lending industry. I don’t know how many times I have heard a buyer saying; “I’m going to get a loan to purchase the business.” It is very rare that a conventional bank will loan money to purchase a business. And I have heard of only one that loaned on a distribution company. The Small Business Administration (SBA) guarantees loans and some businesses qualify. There are SBA mortgage brokers and the business broker works with these contacts to secure you a loan, if the business qualifies.
Business brokers have the necessary forms to prepare an Asset Purchase Agreement. These forms are created from experience and, oftentimes standardized by the associations to which the broker belongs. The Asset Purchase Agreement is the most important and it incorporates the due diligence issues and other contingencies that protect the buyer.
Owning your business allows you to gain more control of your destiny. Small businesses employ the vast majority of Americans, even more than the large corporations. A business becomes like a child that you grow. I wish you luck in finding that business that may not be perfect now, but through your ingenuity, hard work and brilliant ideas you can create the perfect business.

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.