Find Business Broker with Experience and Expertise
A business owner that is seeking to maximize the purchase price of their business while maintaining the confidentiality of the sale should hire a professional business broker to sell their business. An experienced and expert business broker (who only sells businesses full time) has the tools and know-how to keep business sales confidential, properly price businesses in different industries, and to hold the deal together by anticipating problems and issues before they jeopardize the sale.
First Review Business Broker’s Background
- The first step in finding the right business broker is simply reviewing the business broker’s background and website in order to uncover important clues about their experience and expertise in selling businesses.
- Ensure that the broker has a current Florida real estate broker’s license (which governs business brokerage) and has a valid office address in South Florida.
- Most importantly, one should go on the business broker’s website and review their current listings of businesses for sale.
- It is crucial to distinguish the business broker’s own listings from generic listings from other brokers.
- In reviewing the business broker’s current listings, one can determine if the listing advertisements are professionally written and explanatory while still maintaining the confidentiality of the advertised business.
- Finally, the business broker must have a proper Non-Disclosure Agreement (NDA) and qualifying documents in place to send potential buyers that protects the seller’s confidentiality and integrity of the deal throughout the sales process.
- The publicly available advertisements on the business broker’s website should not generally contain verbiage or pictures that enable a viewer to figure out the actual identity of the business.
- Doing so violates the seller’s confidentiality.
Properly Price Business
Many business owners ask themselves ‘What is My Business Worth?‘ prior to determining whether they even want to sell their business. Properly pricing a business in order to effectuate its sale can take many hours of work and preparation for both the seller and the broker. The business broker must be provided with up to date financials, an equipment list, lease, information pertaining to how the business operates, and more. Then the business broker must determine the actual ‘owner benefit‘ of the business. This refers to the true monetary benefit derived by the owner from the business. The owner benefit includes unrecorded sales, the owner’s personal expenses that are expensed through the business, and other adjustments that generally reflects the true monetary benefit that a working buyer/owner would derive from the business.
Factors Affecting Asking Price
Once the owner benefit is properly calculated by the business broker, the next step is to assign a multiple of this earnings in order to derive an asking price. Typically buyers are willing to pay 1.5-4x the owner benefit for a small business. This means that they will get their investment back (as a working owner) in 1-4 years or so. The business broker must have the experience and expertise in order to assess a wide variety of factors in order to determine the best possible asking price. Various factors that affect the multiple of owner benefit include the trajectory of sales and profits over the last several years along with the future outlook, physical assets included in the business, the degree to which the owner is absentee from the business, the location (especially for retail businesses), the leasehold rights, and any other competitive advantage that allows the business to add value for its customers.
Experienced Business Brokers Understand Different Industries
- Only full time business brokers sell small businesses across a wide spectrum of different industries.
- Years of experience in the business brokerage industry give key insights into the typical business models within differing industries.
- Businesses are priced differently within certain industries, and most buyers conduct their due diligence on a business similarly within certain industries.
- For example, businesses in the healthcare field (such as home health agencies) must be priced differently than restaurants or beauty salons.
- Particularly in South Florida, healthcare businesses sell at a premium due to the favorable demographics of seniors, recession-resistant nature of the industry, and the typically high value assigned to the license owned by the healthcare provider (such as a Medicare certified agency license).
- When it comes time to conduct formal due diligence, an experienced business broker is also aware that buyers of laundromats often conduct due diligence by examining utility records rather than financials (since laundromats are generally a cash business).
- Conversely, buyers of pool routes often conduct their due diligence by riding along with the seller for a period of time (after a deposit is given).
- In general, a business broker must be familiar with many different industries especially in regards to how the businesses within each industry are generally valued, who the typical buyers are within each industry, and effectuating the buyer’s due diligence for businesses within certain industries.
Expert Business Brokers Anticipate Problems
An often overlooked role of a business broker is the ability to anticipate problems and issues that inevitably arise during a business deal. One of the worst things that can happen to a business deal is when one side is surprised by a problem or issue. This surprise usually causes the terms of the deal to change in order to address the problem or issue, which easily leads to the collapse of the deal itself. The ability to avoid this from happening by anticipating significant issues in advance and effectively communicating the concerns and possible remedies to each party is of paramount importance.
Example of Expert Business Broker Anticipating Problems of Business Deal
- Let us suppose that Alex is selling his chain of auto shops to Barry the Buyer with the assistance of a professional business broker.
- Alex and Barry are negotiating a Letter of Intent whereby Barry will obtain Small Business Administration (SBA) financing in order to pay Alex a total of $3M for the business.
- The deal looks great to Alex, but the business broker reminds Alex that the SBA will want he (Alex) to give seller-financing for around 10% or so of the total purchase price (or $300K).
- Moreover, the $300K seller-financed Note will be subordinate to the Note given to the SBA by Barry in case there is a default.
- To top it off, the SBA will require Alex to accept ‘stand-by provisions’ that are often very onerous for a seller (such as when payments on the seller-financed Note begins).
- An expert business broker anticipates and explains this issue to Alex well ahead of time so that he is not surprised at the last minute when the SBA reveals its final lending terms later on in the process.
- This avoids having to subsequently renegotiate the deal as a result of the onerous terms of the SBA-required Seller Note.
Only an experienced and expert business broker has the necessary traits and skills to properly price a business and confidentially sell a business. Hiring the right business broker is critical in having a successful sale of your business.
Give Martin at Five Star Business Brokers of Palm Beach County a call today at 561-827-1181 for a FREE evaluation of your business.